Which of the following statements regarding gross margin and contribution margin is correct?
A) If there are no variable period operating expenses to consider, the contribution margin is always greater or equal to the gross margin.
B) The contribution margin includes all costs of goods sold, both fixed and variable, while the gross margin does not.
C) The gross margin includes all variable product costs, while the contribution margin does not.
D) The gross margin is never represented as a line item on the income statement, while the contribution margin is.

Question

Quizplus · Accepted Answer

The essential difference between the contribution margin and gross margin is that fixed overhead costs are not included in the contribution margin. This means that the contribution margin is always higher than the gross margin, if there are no variable period operating expenses. The classic measure of the profitability of goods and services sold as represented on the income statement is gross margin, which is revenues minus the cost of goods sold. Contribution margin is not shown as a line item on the income statement.

Which of the Following Statements Regarding Gross Margin and Contribution