How much total additional contribution margin

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Reference no: EM133494928

Case: The management of Company "A" feels that if the price of Product X is decreased from $40 per unit to $36 per unit, unit sales will increase from the current level of 13,000 per year to 20,000 units per year. The variable cost of Product X will decrease from $24 per unit to $20 per unit due to additional discounts offered by suppliers. Unfortunately though, the fixed costs will increase from the current $100,000 to $170,000, if the sales volume increases.

Management has asked you to analyze this information, (keeping in mind the CVP relationships) and determine the following;

Question 1: How much total additional contribution margin will be created?

Question 2: Will the changes cause the contribution margin ratio to increase or decrease?

Reference no: EM133494928

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