Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?

B. Contribution margin per unit will decrease and contribution margin ratio will not change

Explanation:

The formula to calculate the contribution margin per unit and the contribution margin ratio is given below:

The Contribution margin per unit = Selling price per unit - Variable expense per unit

And, the Contribution margin ratio = (Contribution margin per unit) ÷ (selling price per unit) × 100

Let's say that the sales price per unit is $100

And, the variable expense per unit is $50

Therefore, the contribution margin per unit is $50

The contribution margin ratio = $50 ÷ $100 = 50%

Now if the sale price and the variable expenditure both decline by 5%

Hence, the new sales price per unit is $95

And, the new variable expenditure per unit is $47.5

So, the contribution margin ratio = $47.5 ÷ $95 = 50%

Hence, the correct option is B.

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