What Is the Equation to Calculate Contribution Margin

question 19

Multiple Choice

What is the equation to calculate contribution margin?

• A)contribution margin = sales revenue × variable cost ratio
• B)contribution margin ratio = contribution margin/variable costs
• C)contribution margin = fixed costs
• D)contribution margin ratio = 1 − variable cost ratio

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life.

Bankruptcy

A legal process for individuals or businesses unable to meet their outstanding debts, allowing them to negotiate for partial or complete relief.

Financial Distress

A situation where a company struggles to meet or has difficulty in paying off its financial obligations to its creditors.

M&M I

The Modigliani-Miller Theorem I, which suggests that in the absence of taxes, bankruptcy costs, and asymmetric information, and in an efficient market, the value of a firm is unaffected by its capital structure.