When sales increase by 9%, which of the following should also increase by 9% in a merchandising company? (A) Variable cost (B) Fixed cost (C) Gross margin (D) Contribution margin (E) Net operating income

(A) Variable cost

(C) Gross margin

D) Contribution margin

Explanation:

mathematically:

Gross Margin = Sales - cost of goods sold

for constant cost of good sold, an increase in sales alternately increases the gross margin.

and

Contribution Margin = Sales - Variable costs

as sales increase, the variable cost has to increase so as well the contribution margin has to increase.