ECONOMICS

Detailed explanation-1: -Both variable and fixed costs are included in calculating the contribution margin. A CVP income statement shows contribution margin instead of gross profit. The break-even point is where total sales equal total variable costs. The break-even point is equal to fixed costs plus net income.

Detailed explanation-2: -Both variable and fixed costs are included in calculating the contribution margin. The contribution margin ratio is calculated by multiplying the unit contribution margin by the unit sales price. A cost-volume-profit graph shows the amount of net income or loss at each level of sales.

Detailed explanation-3: -Contribution margin measures how much money your business retains after paying variable expenses of making your products. Although it can be used as an overall measure of your business’s profitability, it may be most helpful on a line-item basis to assess the profitability of each product or service you sell.

Detailed explanation-4: -As contribution margin excludes fixed costs, the amount of expenses used to calculate contribution margin will likely always be less than gross margin. The total of net revenue for both is the same.

Detailed explanation-5: -The contribution margin represents the portion of a product’s sales revenue that isn’t used up by variable costs, and so contributes to covering the company’s fixed costs.