As sales exceed the break-even point, a high contribution-margin percentage
A) decreases profits faster than does a small contribution-margin percentage.
B) decreases profits at the same rate as a small contribution-margin percentage.
C) increases profits at the same rate as a small contribution-margin percentage.
D) increases profits faster than does a small contribution-margin percentage.

Question

Quizplus · Accepted Answer

A high contribution-margin percentage means that each sale contributes more to covering fixed costs and generating profit. Therefore, as sales exceed the break-even point, a high contribution-margin percentage will increase profits faster than a small contribution-margin percentage. Choice A is incorrect because a higher contribution-margin percentage means greater profits, not lower profits. Choices B and C are incorrect because they suggest that a high and small contribution-margin percentage have the same effect on profits, which is not true.

As Sales Exceed the Break-Even Point, a High Contribution-Margin Percentage