ECONOMICS

Detailed explanation-1: -The contribution margin is calculated by subtracting the total variable costs from the total sales revenue. The formula is: Contribution Margin = Total Sales Revenue – Total Variable Costs.

Detailed explanation-2: -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-3: -The contribution margin is computed as the selling price per unit, minus the variable cost per unit. Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company.

Detailed explanation-4: -Explanation: The contribution margin represents the difference between the sales price per unit and the variable cost per unit and not the total cost per unit. The contribution margin is then used to meet the fixed costs and generate operating income therefrom. Hence the statement is false.