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A company's initial budget for month 3 includes sales of $100,000, a contribution to sales (C/S) ratio of 40% and fixed costs of $20,000.
If the budgeted sales volume in month 3 is reduced by 5% but contribution per unit, total fixed costs and sales mix are unchanged, which of the following statements, about the change to the budgeted profit or contribution in month 3 is true?
Suggested Answer: B
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27 comments · newest first
FE
Felix
8 months ago
Definitely more than 5%. Lower sales hit profits hard!
TA
Tawna
8 months ago
I feel like it could be less than 5% though. The C/S ratio helps.
KE
Kent
8 months ago
I think the profit will drop more than 5%.
CA
Candida
9 months ago
Totally agree, fixed costs impact it a lot!
MA
Mari
9 months ago
Wait, how can we be sure it’s more than 5%? Sounds off.
AN
Andra
9 months ago
Definitely lower by more than 5%, fixed costs stay the same!
FL
Florinda
9 months ago
I think the profit drop will be more than 5% because of fixed costs.
IR
Irma
9 months ago
The original sales were $100,000, so a 5% drop is $95,000 now.
ST
Stephaine
9 months ago
Haha, the company should have planned for a 5% reduction in sales. Rookie mistake!
TW
Twana
10 months ago
Wait, is this a trick question? I'm not sure I trust any of these options.
WI
William
10 months ago
I think I recall that fixed costs don’t change, so the profit drop might be more than the sales drop percentage. I’m leaning towards option B.
VA
Vallie
10 months ago
I’m a bit confused about the C/S ratio here. Does it mean that the profit drop is proportional to the sales drop?
GO
Golda
10 months ago
Hmm, this question seems a bit tricky. I'll have to think it through carefully.
MI
Miesha
10 months ago
C) The revised budgeted contribution would be lower by less than 5%.
TH
Theodora
11 months ago
B) The revised budgeted profit would be lower by more than 5%.
TR
Tracey
11 months ago
Agreed, since fixed costs stay the same, the impact is bigger.
LA
Lachelle
11 months ago
This question seems similar to one we practiced where we had to adjust for changes in sales. I think the contribution would drop more than 5% because fixed costs stay the same.
ME
Mertie
11 months ago
I remember we discussed how a decrease in sales volume affects contribution, but I'm not sure how to calculate the exact impact.
LU
Lucy
12 months ago
Okay, I think I've got it. If sales drop by 5%, then contribution will also drop by less than 5% since the contribution ratio is unchanged. And since fixed costs are fixed, the drop in profit will also be less than 5%. So the correct answer is option C.
RE
Reiko
12 months ago
I'm a bit confused on this one. I know that contribution is sales minus variable costs, and profit is contribution minus fixed costs. But I'm not sure how to apply that here with the 5% change in sales volume. I'll need to work through the numbers to figure out the right answer.
PA
Patria
12 months ago
Okay, let's see. If the sales volume goes down by 5%, but the contribution per unit and fixed costs stay the same, then the contribution and profit should both go down by less than 5% since the fixed costs are unchanged. I'm leaning towards option C.
BU
Buddy
1 year ago
Hmm, this looks like it's testing our understanding of how changes in sales volume impact contribution and profit. I'll need to think through the relationships between sales, contribution, and fixed costs to determine the right answer.
DE
Denae
7 months ago
So, B and D seem like the best choices here.
WI
Willow
7 months ago
Agreed! Contribution will also drop significantly.
CH
Chaya
7 months ago
I think it’s definitely more than 5% lower for profit.
TA
Taryn
7 months ago
Right? Fixed costs stay the same, so profit takes a bigger hit.
OL
Olive
10 months ago
This is tricky! A 5% drop in sales might hit profits harder.