Question

The breakeven sales volume in units can be determined by dividing the total of fixed costs plus the desired income with a denominator. What is the denominator?

Contribution margin

Margin of safety

Sales

Contribution margin ratio

Unit sales price

Answer 1

Answer:

OPTION A: Contribution Margin

Explanation:

The formulae in CVP analysis are as follows:

Break even Point (in units) = Fixed Cost / Contribution per unit

Break even Point (in $) = Fixed Cost / Contribution Margin ratio

Desired sales (in units) = (Fixed Cost + Profit)/ Contribution per unit

Desired sales (in $) = (Fixed Cost + Profit)/ Contribution ratio

Margin of Safety (in units) = Actual sales (in units) - Break even Point (in units)

Margin of Safety (in $) = Actual sales (in $) - Break even Point (in $)

So,

It can be clearly seen in the formula that contribution margin is divided.

In case of any doubt or clarification, feel free to come back via comments.