Question

If the contribution margin is not sufficient to cover fixed expenses: a. total profit equals total expenses. b. a net operating loss occurs. c. contribution margin is negative. d. variable expenses equal contribution margin.

Answer 1

Answer:

Option b. a net operating loss occurs.

Explanation:

contribution margin is simply known to be that portion of sales revenue that is yet to be consumed by variable costs and so is an addition to covering the fixed costs. The higher the contribution margin ratio, the more smaller or fewer the units that will need to be manufactured to become profitable. In short, it is sales revenue minus fixed expenses.