Question

Please help!

1. Define contribution margin and explain how it is used by a business

2. What is the relationship between costs, volume and profit. What does each term mean? Provide an example of how you would use it.

3. What is the contribution margin ratio and contribution margin per unit? How are they used by a business

Answer 1

Answer 1.

Contribution margin, is the selling price per unit minus the variable cost per unit.

"Contribution" represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.

How used by businesses.

contribution margin is important because it shows how much money is available to pay the fixed costs such as rent and utilities, that must be paid even when production or output is zero.

Answer 2.

Cost

cost is the monetary value that has been spent by a company in order to produce something. ... Therefore, the cost of a product from the buyer's point of view can be called the price.

Volume

volume might be an activity such as the number of machine hours, the number of units produced, the number of pounds processed, the number of units sold, or the dollars of goods sold.

Profit

Profit, also called net income, is the amount of earnings that exceed expenses for the period

For example, a company with $100,000 of fixed costs and a contribution margin of 40% must earn revenue of $250,000 to break even

Cost Volume-Profit (CVP) relationship is an analysis which studies the relationships between the following factors and its impact on the amount of profits. -

Answer 3

The contribution margin ratio is the difference between a company's sales and variable expenses, expressed as a percentage. The total margin generated by an entity represents the total earnings available to pay for fixed expenses and generate a profit.

The contribution margin per unit is the difference between the selling price and the variable cost per unit, and the contribution margin ratio is the ratio of the contribution margin to the selling price per unit. ... Contribution margin per unit increases and the contribution margin ratio decreases.