The impact on net operating income of a given pound change in sales can be computed by applying the contribution margin ratio to the pound change in sales

Question

Quizplus · Accepted Answer

This statement is true. The contribution margin ratio is calculated by dividing the contribution margin by the total sales revenue. It indicates the percentage of each sale that contributes to covering the company's fixed costs and generating profits. By multiplying the CM ratio by the change in sales, we can calculate the change in contribution margin. Finally, subtracting the total fixed costs from the contribution margin will give us the net operating income or profit.

The Impact on Net Operating Income of a Given Pound