A is corrent. Prices under the contribution margin approach are set at variable cost plus a percentage markup. The percentage markup, or contribution margin, will be used to cover fixed costs and any remainder will be profit. If the selling price is set at variable cost, no contribution margin will be generated. Therefore, income will remain constant.
B is incorrect. Fixed costs will remain the same in total no matter how many units are sold within a relevant range.
B is incorrect. Fixed costs will remain the same in total no matter how many units are sold within a relevant range.
D is incorrect. Prime cost (direct materials plus direct manufacturing labor) does not include all variable costs.
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