The contribution margin
A) is especially helpful for predicting the impact on income of short-run changes in activity volume.
B) is defined as sales revenues less all fixed costs.
C) cannot be used with segments.
D) cannot be calculated for investment centres.

Question

Quizplus · Accepted Answer

The contribution margin is a measure of how much contribution (revenue minus variable costs) a product or activity provides, which can help predict the impact of short-run changes in activity volume since it shows how much revenue will increase or decrease with a change in volume. Option B is incorrect because fixed costs are not included in the contribution margin calculation. Option C is incorrect because the contribution margin can be used for analyzing segments. Option D is incorrect because investment centers can calculate contribution margins for individual projects or products.

The Contribution Margin