Which of the following is true regarding the contribution margin ratio of a single product company?

Question

Quizplus · Accepted Answer

This is known as the contribution margin equation, which can be expressed as follows: Contribution Margin Ratio x Sales = Contribution Margin - Fixed Expenses = Net Operating Income. Therefore, if sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales. Option A is incorrect since the contribution margin ratio holds constant regardless of changes in fixed expenses. Option B is incorrect because the contribution margin per unit is equal to the price per unit minus the variable expense per unit, not the contribution margin ratio multiplied by the variable expense per unit. Option D is incorrect because the contribution margin ratio remains the same regardless of the number of units sold.

Which of the Following Is True Regarding the Contribution Margin