A Level Accounting (9706)•9706/13/O/N/22
Explanation
Misclassification overstates contribution/sales ratio by 16%
Steps:
- Variable costs understated by 26,000, so calculated contribution overstated by 26,000.
- Contribution/sales ratio = contribution ÷ 160,000.
- Overstatement in ratio = 26,000 ÷ 160,000 = 0.1625 or 16%.
- Calculated ratio exceeds correct ratio by 16 percentage points.
Why A is correct:
- Per contribution margin formula, treating variable costs as fixed excludes them from deduction, inflating ratio by misclassified amount over sales (26,000/160,000=16%).
Why the others are wrong:
- B: 25% miscomputes proportion (26,000/160,000=16%, not 25%).
- C: Error overstates ratio, does not understate it.
- D: Error overstates, not understates, and 24% is incorrect proportion.
Final answer: A
Topic: Costs and cost behaviour
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