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What is the contribution margin in CVP analysis?

Practice Questions

Q1
What is the contribution margin in CVP analysis?
  1. Sales revenue minus fixed costs
  2. Sales revenue minus variable costs
  3. Total costs minus total revenue
  4. Net income before taxes

Questions & Step-by-Step Solutions

What is the contribution margin in CVP analysis?
  • Step 1: Understand what sales revenue is. This is the total money earned from selling products or services.
  • Step 2: Know what variable costs are. These are costs that change depending on how much you sell, like materials or labor directly tied to production.
  • Step 3: Calculate the contribution margin by subtracting the total variable costs from the total sales revenue.
  • Step 4: The formula looks like this: Contribution Margin = Sales Revenue - Variable Costs.
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