Question

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? Contribution Break-even

Answer 1

Answer:

Sales: Increase
Variable expenses: No effect
Contribution margin: Increase
Fixed expenses: No effect
Net operating income: Increase

Explanation:

It is given that a price increase next year will not decrease units sales. It means that selling price per unit will increase but the selling units will remain the same.

Sales: An increase in selling price with units remain the same will increase the sales of the company.

Variable expenses: As the units sold remains the same, it will not cause any change to variable expenses.

Contribution margin: As the sales increases the contribution margin also will increase.

Fixed expenses: Fixed expenses will not vary in accordance with the change is sales price or selling units. Hence, fixed expenses will not change.

Net operating income: An increase in sales price and contribution margin with stable selling units and fixed expenses, will increase the net operating income of the company.