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E operates a marginal costing systerm. for the forthcoming year,variable costs are budgeted to be 60% of sales value and fixed costs are budgeted to be 10% of sales value.
If E increases its selling price by 10%,but it fixed costs,variable cost per unit and sales volume remained unchanged, the effect of contribution woul be
A a decrease of 2%
B an increase of 5%
C an increase of 25%Ans.
Original Revised
Sellling price 100 110
variable cost/unit 60 60
contribution 40 50(50-40)/40 x 100=25
could u explain me the last step ?
ThanksThe new contribution is 50, the old one was 40.
So the increase is 10.The question wants to know the % change, and 10 / 40 is 25%.
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