The Contribution Margin Ratio

question 191

Multiple Choice

The contribution margin ratio:

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

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Definitions:

Incremental Cost Approach

A decision-making process that focuses on the changes in total cost due to a change in activity or a decision.

Payback Period

The length of time required to recover the cost of an investment, calculated by dividing the initial investment by the annual cash inflow.

Discount Rate

The interest rate applied in determining the current valuation of future cash flows via discounted cash flow analysis.

Annual Cash Operating Costs

Annual Cash Operating Costs represent the total amount of money a business spends on operating activities during a year, excluding non-cash expenses.