For a given level of sales, a low contribution margin ratio will produce less net income than a high contribution margin ratio.

Question

Quizplus · Accepted Answer

The contribution margin ratio is the percentage of sales that is left over after subtracting variable expenses. A higher contribution margin ratio means that there are fewer variable expenses per unit sold, resulting in a larger contribution to cover fixed costs and ultimately producing higher net income. Conversely, a low contribution margin ratio means that more of each sales dollar is consumed by variable expenses, leaving less to cover fixed costs and resulting in lower net income.

For a Given Level of Sales, a Low Contribution Margin