Asked by Perla Alvarado on Jul 22, 2024
Verified
In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.
Contribution Margin Ratio
A financial metric that measures the proportion of revenue remaining after variable costs have been deducted, indicating how much revenue is available to cover fixed costs and generate profit.
Fixed Expenses
Costs that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.
- Acquire insight into the function of the contribution margin ratio and contribution margin per unit in the calculation of net operating income and identification of break-even points.
- Evaluate the effects of changes in the sales mix on the break-even point and profitability.
Verified Answer
AS
Atinderpal SinghJul 23, 2024
Final Answer :
False
Explanation :
The contribution margin ratio is calculated as (Sales - Variable Expenses) / Sales, and it is not directly affected by the proportion of fixed expenses in the cost structure. It is determined by the relationship between sales and variable expenses, not fixed expenses.
Learning Objectives
- Acquire insight into the function of the contribution margin ratio and contribution margin per unit in the calculation of net operating income and identification of break-even points.
- Evaluate the effects of changes in the sales mix on the break-even point and profitability.