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In cost-volume-profit (CVP) analysis, what does the contribution margin represen
In cost-volume-profit (CVP) analysis, what does the contribution margin represent?
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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
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The contribution margin is calculated as sales revenue minus variable costs.
Questions & Step-by-step Solutions
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Q
Q: In cost-volume-profit (CVP) analysis, what does the contribution margin represent?
Solution:
The contribution margin is calculated as sales revenue minus variable costs.
Steps: 6
Show Steps
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.
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