Given a constant sales price, the larger the contribution margin, the:
A) Higher the variable cost per unit as a percentage of the sales price.
B) Higher the cash break-even point.
C) Lower the ﬁnancial break-even point.
D) Lower the ﬁxed costs as a percentage of the sales price.
E) Lower the gross proﬁt per unit sold.

Question

Quizplus · Accepted Answer

The contribution margin is the amount of revenue that exceeds the variable costs per unit. Therefore, a larger contribution margin means a lower fixed cost per unit as a percentage of the sales price. This, in turn, results in a lower financial break-even point, which is the point at which revenue equals total costs (fixed and variable). Option A, B, D, and E are incorrect as they do not accurately depict the relationship between sales price and contribution margin.

Given a Constant Sales Price, the Larger the Contribution Margin