Question

In: Accounting

Which of the following is true regarding the contribution margin of a company that produces only...

Which of the following is true regarding the contribution margin of a company that produces only a single product?

a. The contribution margin minus selling and administrative costs equals net operating income.

b. As fixed expenses decrease, the contribution margin increases.

c. The contribution margin equals the sales less the total product costs

d. The contribution margin will decline as the unit sales price declines

Solutions

Expert Solution

The contribution margin or dollar contribution per unit is the selling price per unit minus the variable cost per unit .The contribution represents the portion of sales revenue that is not consumed by the variable cost and so contributes to the coverage of fixed cost.

Formula

Contribution margin = (Sales revenue) -(Variable cost)

Selling and administrative costs are variable costs.So it is already deducted for calculating contribution margin. And contribution margin and net operating income are different terms.That is why option A is incorrect

As fixed expense is a part of contribution margin so any increase or decrease in fixed expense do not affects contribution margin. So option B is also incorret .

As variable cost is a part of total product cost. And the formula of contribution margin is equals to sales revenue less variable cost . It do not includes the total cost. So option C is also incorrect.

Option D is correct as contribution margin declines with decline in sales revenue keeping constant the variable cost.We can easily confirm it by the formula.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Which of the following statements is incorrect regarding contribution​ margin? A. The total contribution margin tells...
Which of the following statements is incorrect regarding contribution​ margin? A. The total contribution margin tells managers the amount by which sales revenue exceeds cost of goods sold. B. The contribution margin income statement is organized by cost behavior. C. The variable cost percentage represents the amount from each sales dollar that covers variable costs. D. The unit contribution margin is calculated by subtracting the unit variable cost from the sales price. E. Companies that sell more than one product...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): Sales $14,700 Food and packaging $6,044 Payroll 3,700 Occupancy (rent, depreciation, etc.) 2,416 General, selling, and administrative expenses 2,100 $14,260 Income from operations $440 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): Sales : $19,700 Food and Packaging: $7630 Payroll: $5000 Occupancy: $3580 General expenses: $2,900 Total: $19,110 Income from operations: $590 a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. b. What...
Contribution Margin and Contribution Margin Ratio For a recent year, McDugal's company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales   $27,300 Food and packaging   $7,227 Payroll 7,200 Occupancy (rent, depreciation, etc.) 8,673 General, selling, and admin. expenses    4,200 Other expense 550 Total expenses (27,850) Operating income (loss) $(550) Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Enter your answer in...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): Sales $25,600 Food and packaging $6,356 Payroll 6,500 Occupancy (rent, depreciation, etc.) 8,274 General, selling, and administrative expenses 3,700 $24,830 Income from operations $770 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in...
Contribution Margin and Contribution Margin Ratio For a recent year, McDonald's Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, McDonald's Company-owned restaurants had the following sales and expenses (in millions): Sales $34,300 Food and packaging $8,851 Payroll 8,700 Occupancy (rent, depreciation, etc.) 10,719 General, selling, and administrative expenses 5,000 $33,270 Income from operations $1,030 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions...
Contribution Margin and Contribution Margin Ratio For a recent year, McDonald's Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, McDonald's Company-owned restaurants had the following sales and expenses (in millions): Sales $27,400 Food and packaging $7,118 Payroll 6,900 Occupancy (rent, depreciation, etc.) 8,562 General, selling, and administrative expenses 4,000 $26,580 Income from operations $820 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions): Sales $33,700 Food and packaging $8,412 Payroll 8,500 Occupancy (rent, depreciation, etc.) 10,878 General, selling, and administrative expenses 4,900 $32,690 Income from operations $1,010 Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in...
Contribution Margin and Contribution Margin Ratio For a recent year, McDugal's company-owned restaurants had the following...
Contribution Margin and Contribution Margin Ratio For a recent year, McDugal's company-owned restaurants had the following sales and expenses (in millions): Sales   $40,300 Food and packaging   $14,224 Payroll 10,700 Occupancy (rent, depreciation, etc.) 9,176 General, selling, and admin. expenses    6,200 Other expense 810 Total expenses (41,110) Operating income (loss) $(810) Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses. a. What is McDonald's contribution margin? Enter your answer in...
Contribution Margin with Resource Constraints. CyclePath Company produces two different products that have the following price...
Contribution Margin with Resource Constraints. CyclePath Company produces two different products that have the following price and cost characteristics. Bicycle Tricycle Selling price per unit $200 $100 Variable cost per unit $120 $  50 Management believes that pushing sales of the Bicycle product would maximize company profits because of the high contribution margin per unit for this product. However, only 50,000 labor hours are available each year, and the Bicycle product requires 4 labor hours per unit while the Tricycle model...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT