Question

Contribution margin is a.the same as sales revenue b.the excess of sales revenue over variable cost c.another term for volume in cost-volume-profit analysis d.profit

Answer 1

Answer:

The correct answer is letter "B": the excess of sales revenue over variable cost.

Explanation:

In its most simple form, contribution margin is calculated by subtracting variable costs and expenses from revenues. Contribution margin represents a part of the company's revenues that are not allocated for variable cost. Thus, that portion is used to pay the firm's fixed costs. Contribution margin is low usually for labor-intensive entities while capital-intensive companies tend to have a higher contribution margin.