There is an important relation between contribution margin and profit.Which of the following statements is not true?
A)As the number of units sold rises, profit increases by the variable cost per unit.
B)As the number of units sold increases, total contribution margin increases, but fixed costs remain the same.
C)As the number of units sold rises, profit increases by the additional contribution margin per unit.
D)As the number of units sold decreases, total contribution margin decreases, but fixed costs remain the same.

Question

Quizplus · Accepted Answer

The correct statement is that as the number of units sold rises, profit increases by the additional contribution margin per unit, not by the variable cost per unit. Contribution margin is calculated as sales revenue minus variable costs, and it is this margin that contributes to covering fixed costs and generating profit.

There Is an Important Relation Between Contribution Margin and Profit