Question

Which of the following statements are true when making decisions using cost volume profit analysis?

A. As long as the contribution margin is a positive number, net income will be positive

B. As long as variable costs are more then fixed costs, net income will be negative

C. As long as the contribution margin is greater than the fixed costs, net income will be positive

D. As long as the sales price per unit is greater than fixed costs per unit, net income will be positive

Answer 1

Please find below the solution.. let me know if you need any clarification..

correct answer is option : C. As long as the contribution margin is greater than the fixed costs, net income will be positive

Other statement are false because. a) Net income can be negative if contribution margin is less than fixed cost b) net income also depend on sales price and not on the cost d) Variance cost is ignored in option D).