Gross margin is to absorption costing as which of the following is to variable costing?
A)gross profit
B)contribution margin
C)net income
D)territory margin

Question

Quizplus · Accepted Answer

Gross margin is one of the components of cost of goods sold under absorption costing, while variable costing does not allocate fixed manufacturing overhead to products. Therefore, the equivalent of gross margin in variable costing is contribution margin, which represents the amount of revenue that is available to cover fixed expenses and contribute to net income. Choice A (gross profit) is a term that can be used interchangeably with gross margin, but it does not relate specifically to variable costing. Choice C (net income) is a measure of profitability that depends on the method used to allocate fixed manufacturing overhead, and therefore is not equivalent to any specific variable costing figure. Choice D (territory margin) is not a well-known concept in accounting, and it does not relate to either absorption or variable costing.

Gross Margin Is to Absorption Costing as Which of the Following