The larger the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

Question

Quizplus · Accepted Answer

The statement is true. The contribution margin ratio indicates the percentage of sales revenue that contributes towards covering fixed expenses. A higher contribution margin ratio means that the company can cover its fixed expenses with fewer sales, leading to a higher profitability. By computing changes in the CM ratio, one can analyze the impact of changes in sales mix or selling prices on the contribution margin and profit.

The Larger the Contribution Margin Ratio, the Smaller the Amount