B. Gross Profit: Contribution Margin
B. Gross Profit: Contribution Margin
B. Gross Profit: Contribution Margin
How is Contribution Margin (CM) used? It is used to predict profit at different sales levels.
CM ratio = CM/ Sales or Sales –Variable Cost = Contribution Margin
Or CM = Fixed Cost – Loss Contribition margion is also called Marginal Income
The difference between sales and cost of goods sold equals ________.
a. operating profit
b. gross profit
c. profit after tax
d. net profit
Contribution margin = Sales − Variable cost = Fixed cost + Net operating income. Therefore, subtracting
variable cost and income from sales will yield fixed costs.
The break-even point is the level of sales at which the contribution margin covers ________.
a. net income before tax
b. net income after tax
c. variable costs
d. fixed costs
The break-even point is the level of sales at which the contribution margin just covers fixed costs. At this
level, income is equal to zero.
________ refers to the relative proportion of fixed and variable costs in a company.
a. Income structure
b. Cost structure
c. Sales structure
d. Tax structure
A company operating near the break-even point will have a ________.
a. low level of financial leverage
b. high level of operating leverage
c. high level of financial leverage
d. low level of operating leverage
What is Operating Leverage? The measure of the proportion of fixed costs in a company's cost structure.
It is used as an indicator of how sensitive profit is to changes in sales volume.
OL = CM / NI
For every unit sold, contribution margin will ______ in total. Increase
If a company has a low Contribution Margin, how can it increase NI? Decrease expenses