Question
Amit sells handmade specialty paper. Suddenly, there is a drop in demand. Amit can counter this sudden drop in demand by cutting down the selling
Amit sells handmade specialty paper. Suddenly, there is a drop in demand. Amit can counter this sudden drop in demand by cutting down the selling price by 10% (call this option 1) or holding the price the same but offer a better quality product by increasing the variable cost by 10% (call this option 2). Amit thinks that this is the right move since he feels that he has a hefty positive unit contribution margin as of now. Which of the following statements is true?
a. | Option 1 results in smaller decrease in unit contribution margin compared to option 2 | |
b. | Option 2 results in 10% decrease in unit contribution margin | |
c. | Option 1 results in 10% decrease in unit contribution margin | |
d. | Option 2 results in smaller decrease in unit contribution margin compared to option 1 | |
e. | Both options result in identical amount of decrease in unit contribution margin |
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