Contribution margin is
A)the contribution of each unit sold towards covering the fixed costs
B)the contribution of each unit sold towards covering the variable costs
C)the contribution of each unit sold towards covering the average variable costs
D)All of the above

Question

​Contribution margin is
A)​the contribution of each unit sold towards covering the fixed costs
B)the contribution of each unit sold towards covering the variable costs
C)the contribution of each unit sold towards covering the average variable costs
D)​All of the above

Quizplus · Accepted Answer

Contribution margin is the amount left over after deducting variable costs from revenue. It represents the contribution of each unit sold towards covering the fixed costs, which are expenses that do not change with changes in production levels. Therefore, the best choice is option A. Option B is incorrect as it only covers the variable costs and not fixed costs. Option C is also incorrect as it refers to average variable costs, which is the variable cost per unit of output, but contribution margin is based on total variable costs. Option D is incorrect as not all of the options are correct.

​Contribution Margin Is

Contribution Margin Is