I sell my products for $10. I have three dollars and variable costs. If I proces
ID: 2517727 • Letter: I
Question
I sell my products for $10. I have three dollars and variable costs. If I process further, the variable costs increase to nine dollars and I sell the enhanced product for $12. Should I process further? Yes, the enhanced product is more profitable No, the original product had a contribution margin of seven dollars and the new one would have only a contribution margin of three dollars Yes, $12 is better than $10 Both are equal I sell my products for $10. I have three dollars and variable costs. If I process further, the variable costs increase to nine dollars and I sell the enhanced product for $12. Should I process further? Yes, the enhanced product is more profitable No, the original product had a contribution margin of seven dollars and the new one would have only a contribution margin of three dollars Yes, $12 is better than $10 Both are equal Yes, the enhanced product is more profitable No, the original product had a contribution margin of seven dollars and the new one would have only a contribution margin of three dollars Yes, $12 is better than $10 Both are equalExplanation / Answer
Contribution margin = Selling price – variable cost
CM is the amount that a company generates from selling each product that covers fixed cost and profit.
In first case it is $7, however in second case it is only $3, so the correct option is B.