To explain why two business segments have different contribution margin ratios,take the total amounts and expand them into their two components-units and amount per unit-by dividing the totals by the number of units.

Question

Quizplus · Accepted Answer

To calculate the contribution margin ratio, we need to divide the contribution margin by the total revenue. The contribution margin is calculated as the difference between total revenue and total variable expenses. Total revenue and total variable expenses can be broken down into two components - units and amount per unit. Therefore, dividing the totals by the number of units will give us the unit contribution and unit selling price, which can help explain why two business segments have different contribution margin ratios.

To Explain Why Two Business Segments Have Different Contribution Margin