Asked by
jayda adams
on Nov 12, 2024Verified
The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio.
Contribution Margin Ratio
This ratio measures how much of a company's revenues will contribute to covering its fixed costs and generating profit, after variable costs have been paid.
Operating Income
Profit generated from normal business operations, calculated as sales minus cost of goods sold and operating expenses.
Fixed Costs
Expenses that do not change in proportion to the activity of a business, such as rent or salaries.
- Compute the contribution margin ratio and comprehend its importance in Cost-Volume-Profit analysis.
Verified Answer
OM
Learning Objectives
- Compute the contribution margin ratio and comprehend its importance in Cost-Volume-Profit analysis.