Answer :
Final answer:
The contribution margin is equal to 4. sales minus variable expenses and reflects the revenue left over after covering variable costs. It is used in important financial assessments such as break-even analysis.
Explanation:
The contribution margin is calculated as sales minus variable expenses. It represents the portion of sales revenue that is not consumed by variable costs and contributes to covering the fixed costs of a company. This margin is critically important in various management accounting analyses, including break-even analysis, where the break-even point is determined by dividing fixed costs by the contribution margin.
Let's explore a simple example: If you're selling ice cream bars at $5 each, and the variable cost (ingredients, packaging, etc.) is $1.50 per bar, the unit contribution margin would be $5 - $1.50, which equals $3.50. This means for every ice cream bar sold, $3.50 goes towards covering fixed costs and, once fixed costs are covered, contributes to the profit.
In short, the correct answer to the student's question is that the contribution margin is equal to 4. sales minus variable expenses.
