A firm makes and sells bed covers. The firm sells its covers for $150 each and incurs $525,000 of fixed costs
each year. The covers requires $45 of direct matericals and 0.75 direct labor hours to make each cover. The
firm pays its highly skilled workers $60 per hour and variable overhead is applied at the rate of $20 per direct
labor hour. This past year 25,000 covers were sold, and the firm is evaluating what effect a change in sales
volume would have on tis contribution margin. The company is planning on increasing production, which will
require an additional increase in fixed costs of $50,000.
What is the change in the contribution margin if the company produces and sells 40% more units?
400,000 decrease
450,000 increase
400,000 increase
450,000 decrease