What is the effect on the contribution margin if fixed costs increase by $5,000

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Question: What is the effect on the contribution margin if fixed costs increase by $5,000 while sales and variable costs remain unchanged?

Options:

Correct Answer: No effect

Solution:

Contribution margin is unaffected by changes in fixed costs; it only depends on sales and variable costs.

What is the effect on the contribution margin if fixed costs increase by $5,000 while sales and variable costs remain unchanged?

What is the effect on the contribution margin if fixed costs increase by $5,000 while sales and variable costs remain unchanged?

Step 1: Understand what contribution margin is. It is the amount left from sales after variable costs are subtracted.
Step 2: Recognize that fixed costs are costs that do not change with the level of sales, like rent or salaries.
Step 3: Note that contribution margin is calculated using sales and variable costs only, not fixed costs.
Step 4: Since the question states that sales and variable costs remain unchanged, the contribution margin will also remain unchanged.
Step 5: Conclude that an increase in fixed costs does not affect the contribution margin.

No concepts available.