Comparing contribution margin [CM] to gross margin [GM], which of the following is TRUE?
A)If Cost of goods sold includes fixed costs, then CM will exceed GM.
B)If Cost of goods sold does not include any fixed costs, then CM will equal GM.
C)In the merchandising sector, CM and GM are equivalent terms.
D)If CM and GM remain constant from one period to the next, operating income has to remain constant as well.
E)CM is computed after all variable costs are deducted, but GM is computed by deducting only cost of goods sold from revenues.

Question

Quizplus · Accepted Answer

CM is calculated after all variable costs are deducted from revenue, while GM is calculated by deducting only the cost of goods sold (which may include both variable and fixed costs) from revenue. Therefore, if there are any fixed costs included in the cost of goods sold, then the contribution margin will be higher than the gross margin since it deducts only variable costs. In merchandising, GM will be the equivalent term to CM. Operating income will only remain constant if other income and expenses are also consistent.

Comparing Contribution Margin [CM] to Gross Margin [GM], Which of the Following