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 represents the amount of revenue that is available to cover fixed costs and contribute to profits. Failing to meet the target denominator level of activity means that less revenue will be generated and therefore less contribution margin will be available. This highlights the economic impact of the shortfall in activity level. The other options (A, C, and D) do not directly measure the economic impact of an inability to reach the target denominator level of activity.

The Economic Impact of the Inability to Reach a Target