Question
Contribution margin indicates a. the number of units that must be sold to break-even. b.&nb
Contribution margin indicates
a. the number of units that must be sold to break-even.
b. the amount that the sales price per unit exceeds the (product) cost of the unit.
c. the amount that the sale of each additional unit contributes toward the payment of selling and administrative costs.
d. the amount that the sale of each additional unit contributes toward net income.
Homework Answers
Answer #1
ANSWER:
Answer is option d.
Contribution margin indicates the amount that the sale of each additional unit contributes toward net income.
Explanation:
Contribution margin represents the incremental money generated for each product or unit sold after deducting variable cost from the sale price of the product or unit. It indicates how a product contributes to the overall profit of the company. It provides potential of profitability of a product and indicates the portion of sales that help to cover the company's fixed costs.
Following is the formula of Contribution Margin:
Contribution Margin = Sales Revenue - Variable Cost
Generally Contribution Margin is expressed as a ratio.
Therefore,
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