The economic impact of the inability to reach a target denominator level of activity would best be measured by:
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 manufacturing overhead budget variance.
D) the amount of the variable overhead efficiency variance.

Question

Quizplus · Accepted Answer

The contribution margin is the amount of money each unit sold contributes towards covering fixed costs and generating profits. Failing to meet the target denominator level of activity means that fewer units will be sold, resulting in a loss of contribution margin, which directly impacts the profitability of the business. The other options are not directly related to measuring the economic impact of failing to meet the target denominator level of activity.

The Economic Impact of the Inability to Reach a Target