Question

Which of the following statements about cost-volume-profit analysis is true?

		To increase the contribution margin ratio, a manager should decrease fixed cost.
		The contribution margin ratio represents the percentage of sales revenue available to contribute towards covering variable and fixed costs.
		At the breakeven point, total sales revenue equals total costs.
		If a company expands operations outside of its relevant range, variable cost per unit could change, but total fixed costs will always stay constant.

Answer 1

Correct answer is Option-C. At the breakeven point, total sales revenue equals total cost.

Explanations:

Increase or decrease in fixed cost will not affect Contribution margin ratio.

Contribution margin is equal to Sales less variable cost.

Even If a company expands operations outside of its relevant range, variable cost per unit will not change, total fixed costs will always stay constant.

At the breakeven point, the entity will not earn any profit or incur loss. Total sales = Total costs

100 Example: Particulars Sales less: Variable cost Contribution margin less: Fixed costs Net income Amount $ $ $ $ $ 50 50 30 20