The contribution margin ratio:
A)Is the percent of each sales dollar that remains after deducting the total unit variable cost.
B)Is the percent of each sales dollar that remains after deducting the total unit fixed cost.
C)Is the percent of each sales dollar that remains to cover the variable and fixed costs.
D)Cannot be used in conjunction with other analytical tools.
E)Is the same as the unit contribution margin.

Question

Quizplus · Accepted Answer

The contribution margin ratio is calculated by dividing the total contribution margin by total sales revenue. It represents the percentage of each sales dollar that contributes to covering fixed costs and generating profit after deducting the unit variable costs. Therefore, option A is the correct answer. Option B is incorrect as it refers to the gross margin ratio, which only subtracts unit costs of goods sold from sales revenue. Option C is partially correct as it describes the purpose of the contribution margin ratio but does not define it accurately. Option D is incorrect as the contribution margin ratio is a commonly used analytical tool. Option E is incorrect as the unit contribution margin refers to the amount of contribution per unit, not the percentage.

The Contribution Margin Ratio