There Is an Important Relation Between Contribution Margin and Profit

question 104

Short Answer

There is an important relation between contribution margin and profit.Which of the following statements is not true?
A) As the number of units sold increases, total contribution margin increases, but fixed costs remain the same.
B) As the number of units sold rises, profit increases by the additional contribution margin per unit.
C) As the number of units sold increases, total contribution margin and fixed costs increase.
D) As the number of units sold decreases, total contribution margin decreases, but fixed costs remain the same.

• A) As the number of units sold increases, total contribution margin increases, but fixed costs remain the same.
• B) As the number of units sold rises, profit increases by the additional contribution margin per unit.
• C) As the number of units sold increases, total contribution margin and fixed costs increase.
• D) As the number of units sold decreases, total contribution margin decreases, but fixed costs remain the same.

---

Definitions:

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, representing the amount contributing to covering fixed costs and generating profit.

Operating Income

Earnings generated from a company's core business operations, excluding expenses and revenues that are not related to the primary activities.

Variable Costs

Variable costs are expenses that change in proportion to the activity of a business, such as sales volume or production levels.

Operating Income

The profit realized from a business's core operational activities, excluding deductions of interest and tax.