What happens if the Contribution Margin is positive?

If a product's Contribution Margin is negative, the company is losing money with each unit it produces, and it should either drop the product or increase prices. If a product has a positive Contribution Margin, it's probably worth keeping.

What is Contribution Margin?

Contribution Margin is a product's price minus all associated variable costs, resulting in the incremental profit earned for each unit sold.

What is a good Contribution Margin?

The closer a Contribution Margin percent, or ratio, is to 100%, the better. The higher the ratio, the more money is available to cover the business's overhead expenses or fixed costs. However, it's more likely that the Contribution Margin ratio is well below 100%, and probably below 50%.

What technique analyzes the cost-volume-profit relationship?

Cost, volume, and profit relationships (CVP analysis)

What is the purpose of doing a cost-volume-profit CVP analysis?

Cost-volume-profit (CVP) analysis is a way to find out how changes in variable and fixed costs affect a firm's profit. Companies can use CVP to see how many units they need to sell to break even (cover all costs) or reach a certain minimum profit margin.

Cost, Volume, and Profit Analysis MCQ Quiz With Answers

1. If contribution margin is positive?

Profit will occur
Both a profit and loss are possible
Profit will occur if the fixed expenses are greater than the contribution margin
A loss will occur if the contribution margin is greater than fixed expenses

2. At the breakeven point:

Profit is $0
Fixed Cost + Variable Cost = Sales
Fixed Cost = Contribution Margin
All of the above

3. A complete CVP graph will show that profit or loss at any level of sales is measured by:

A vertical line between the fixed cost line and the x-axis
A horizontal line between the revenue line and the Y-axis
A vertical line between the total revenue line and the total expenses line
A horizontal line between the total revenue line and the total expenses line

4. Contribution margin ratio is:

Total Contribution Margin / Sales
Sales / Contribution Margin per unit
Fixed Cost / Contribution margin per unit
Sales / Variable costs

5. The impact on net operating income of any given dollar change in total sales can be computed by applying which ratio to the dollar change?

Profit margin
Variable cost ratio
Contribution Margin
Ratio of Variable to Fixed Expenses

6. The Hino Corporation has a breakeven point when sales are $160,000 and variable costs at that level of sales are $100,000. How much would contribution margin increase or decrease, if variable expenses dropped by $20,000?