Contribution margin indicates why operating income changes as the number of units sold changes.

Question

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Contribution margin is defined as the amount of revenue left over after subtracting all variable expenses directly related to the production of goods or services. It helps explain how changes in sales volume affect operating income, since as sales increase or decrease, the contribution margin per unit remains constant and the total contribution margin changes proportionally. Therefore, contribution margin is essential in determining the breakeven point and assessing the profitability of a business.

Contribution Margin Indicates Why Operating Income Changes as the Number