What Is the Purpose for Determining Contribution Margin

question 117

Multiple Choice

What is the purpose for determining contribution margin?

• A) To show the contribution by department toward covering indirect costs
• B) To help determine whether or not to eliminate a department
• C) To show the effect on net income for each department
• D) All of these answers are correct.

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Definitions:

Beta

A measure of a stock's volatility in relation to the overall market, indicating its risk level compared to the market average.

Capital Asset Pricing Model

An approach outlining the connection between inherent risks and the expected return of assets, with a focus on stocks.

SML

The Security Market Line, a graphical representation used in the capital asset pricing model (CAPM) to show the relationship between the risk of an investment and its expected return.

Expected Return

The anticipated gain or loss on an investment, considering both the risk and return.