Question

As sales exceed the break‑even point, a high contribution‑margin percentag________.

Answer 1

Answer: b. increases profits faster than does a low contribution-margin percentage

Explanation:

Contribution Margin refers to the amount of sales left after the Variable Costs of a good has been removed from it. That means Contribution Margin is simply Sales less Variable Costs. It helps to check how much is left to deal with Fixed Costs and how much profit remains after.

The Break-Even Point in sales refers to the point where Total Costs is equal to Total Revenue. At this point both variable costs and fixed costs have been covered by the Revenue.  

If you get to this Break-Even Point then, that means you don't have to worry about Fixed Costs anymore and your only worry is the Variable Costs which are present per good. At this point therefore, a Higher Contribution Margin percentage tells that Variable Costs are quite less than sales, this would enable a company to gain profit faster because Fixed Costs are out of the way and anything made over Variable Costs now is Profit.