The economic impact of the inability to reach a target denominator level of activity would best be measured by which of the following?
A) The amount of the volume variance.
B) The contribution margin lost by failing to meet the target denominator level of activity.
C) The amount of the fixed overhead budget variance.
D) The amount of the variable overhead efficiency variance.

Question

Quizplus · Accepted Answer

The contribution margin is a measure of how much revenue is left over after variable costs have been paid. Failing to meet the target denominator level of activity means that the revenue earned will decrease, and so will the contribution margin. This lost contribution margin can then be measured to determine the economic impact of not meeting the target.

The Economic Impact of the Inability to Reach a Target