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For a product that has a positive unit contribution, which of the following events would tend to increase total conttribution by the greatest amount?
I am conufued between these two answers-
A 10% increase in selling price
B 10% decrease in variable cost
Other choices-
C 10% increase in volume sold
D 15% decrease in total fixed costs
Sir, please reply
We aim to answer within 24 hours – so pushing for a reply will not make it come any faster! I do not sit at the computer 20 hours a day (and I am on a different time zone than you and do need to sleep!).
Is there not an answer in the same book in which you found the question? (If not then you should be using a Revision Kit from one of the ACCA approved publishers).
Firstly, D can obviously not be the answer because contribution would not be affected at all. Which leaves the choice between A, B and C.
The best way to approach this sort of question is to make up some quick figures.
For example, suppose the selling price is 100 and the variable costs are 60, and therefore the contribution is 40.
Now see what happens under each of the three choices, and then you will have your answer 🙂
Sir, what how will be make figures for volume sold
If the volume increases by 10% then the revenue and variable costs both increase by 10% and therefore the contribution increases by 10%