In the Area of Cost-Volume-Profit Analysis, the Contribution Margin Ratio

question 55

Multiple Choice

In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to:

• A) Covering the fixed costs of the business and providing operating income.
• B) Fixed expenses and variable expenses.
• C) Variable expenses and interest charges.
• D) Variable expenses when production is at normal capacity.

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Definitions:

Debt/Equity Ratio

Determination of a firm's borrowing dependency, achieved by dividing its liabilities by its shareholder's equity.

Long-Term Debt

Long-term debt refers to loans and financial obligations lasting over one year that a company owes and is recorded on its balance sheet.

Long-Term Debt Ratio

A financial ratio that measures the proportion of a company's total debt that is due more than one year in the future.

Common-Base Year Value

A method used in economics and financial analysis to adjust values for comparison by fixing the prices of goods and services to a specific base year, neutralizing the effect of inflation.