East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

The correct answer is: contribution margin per unit increase, contribution margin ratio no change.

Explanation:

In any organization when planning operations, the executives of a company try to discover the total of its costs and achieve a surplus as a return to the resources that the shareholders have put at the service of the organization. The point at which the income is equal to its costs is called BALANCE POINT in it there is no loss or profit.

In the planning task, this point is an important reference, since it is a limit that influences to design activities that lead to always be above it, as far as possible, in the place where you obtain the highest proportion of utilities.

The breakeven point is determined by dividing the total fixed costs by the contribution margin. The contribution margin is the excess of income with respect to the variable costs; It is the part that contributes to cover fixed costs and provides a utility.

In the case of the breakeven point, the company's total contribution margin is equal to the total fixed costs; There is no utility or loss.

The breakeven point is located where revenues are equal to costs.

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