The Contribution Margin Ratio

question 98

Multiple Choice

The contribution margin ratio:

• A) Is the percent of each sales dollar that remains after deducting total unit variable cost.
• B) Is the percent of each sales dollar that remains after deducting total unit fixed cost.
• C) Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers' incomes.
• D) Cannot be used in conjunction with other analytical tools.
• E) Is the same as the unit contribution margin.

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Definitions:

Pretax Earnings

The amount of income earned by a company before tax expenses are deducted.

Variable Cost

Variable cost refers to expenses that fluctuate with the level of output or production activity, such as raw materials and direct labor costs.

Fixed Costs

Fixed costs are expenses that do not change with the level of production or sales activity, such as rent, salaries, or insurance, remaining constant regardless of business operations.

Contribution Margin

The difference between sales revenue and variable costs, showing how much sales contribute to covering fixed costs and generating profit.