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Answer :
The contribution margin equals sales minus variable costs. It indicates how much each unit sold contributes to covering fixed costs and generating profit. Understanding the contribution margin helps businesses in planning and decision-making.
The contribution margin equals sales minus variable costs. Among the given options, the correct one is 'sales minus variable cost'. This is because the contribution margin is used to cover fixed costs and contribute to profit once the break-even point has been reached. The unit contribution margin is the difference between the price per unit and the variable cost per unit. It's an important measure as it helps a business understand how much each additional unit sold contributes to fixed costs and profit.
To illustrate with the provided example, if total costs are described by the equation '50 + 10 x quantity', and assuming 'quantity' represents the level of output, then the fixed cost is 50, and the variable cost is '10 times the level of output'. For a single unit, if the selling price exceeds the variable cost by a certain amount, that amount would be the unit contribution margin, which subsequently impacts both the break-even point and profitability.
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Final answer:
The contribution margin equals sales minus variable cost. It is a measure of profitability that shows how much each unit of sale contributes to covering the fixed costs and generating profit.
Explanation:
The contribution margin equals sales minus variable cost. It is a measure of profitability that shows how much each unit of sale contributes to covering the fixed costs and generating profit.
