A 45% contribution margin ratio means that:
A)The company should contribute 45% of its operating income to qualified charities for maximum tax benefits.
B)55% of the company's revenue is consumed by fixed and variable costs.
C)The company's revenue has increased by 45% during the current accounting period.
D)45% of the company's revenue is available to cover fixed costs and to contribute toward operating income.

Question

Quizplus · Accepted Answer

A contribution margin ratio of 45% means that out of each dollar in revenue, 45 cents are available to cover fixed costs and contribute towards operating income. The remaining 55 cents are consumed by fixed and variable costs. This calculation allows managers to assess the profitability of products or services without considering indirect expenses like rent, salaries, and utilities.

A 45% Contribution Margin Ratio Means That