Question: In cost-volume-profit (CVP) analysis, what does the contribution margin represent?
Options:
Total sales revenue
Total fixed costs
Sales revenue minus variable costs
Net profit
Correct Answer: Sales revenue minus variable costs
Solution:
The contribution margin is calculated as sales revenue minus variable costs.
In cost-volume-profit (CVP) analysis, what does the contribution margin represen
Practice Questions
Q1
In cost-volume-profit (CVP) analysis, what does the contribution margin represent?
Total sales revenue
Total fixed costs
Sales revenue minus variable costs
Net profit
Questions & Step-by-Step Solutions
In cost-volume-profit (CVP) analysis, what does the contribution margin represent?
Step 1: Understand that the contribution margin is a financial metric used in cost-volume-profit analysis.
Step 2: Know that it shows how much money is available to cover fixed costs and generate profit after covering variable costs.
Step 3: Identify the formula for calculating the contribution margin: Contribution Margin = Sales Revenue - Variable Costs.
Step 4: Recognize that sales revenue is the total money earned from selling products or services.
Step 5: Understand that variable costs are the costs that change with the level of production or sales, like materials and labor.
Step 6: Calculate the contribution margin by subtracting the total variable costs from the total sales revenue.
Contribution Margin – The contribution margin represents the amount remaining from sales revenue after variable costs have been deducted, which contributes to covering fixed costs and generating profit.
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