Cost Volume Profit Analysis - Contribution Margin in Accounting

The video tutorial explains the concept of contribution margin, which is the amount remaining from sales revenue after variable expenses are deducted. It highlights the importance of contribution margin in decision-making and provides equations for calculating it from both total and per unit perspectives. An example is given to illustrate the calculation of contribution margin and its impact on net operating income. The tutorial also introduces the contribution margin ratio, which indicates the increase in net operating income for every additional dollar sold.

What does the contribution margin represent in CVP analysis?

• The total sales revenue of a company

• The fixed costs of production

• The incremental increase in net operating income for one additional unit sold

• The total variable costs of production

How is the total contribution margin calculated?

• By dividing total sales revenue by the number of units sold

• By subtracting total variable costs from total sales revenue

• By adding fixed costs to total variable costs

• By subtracting fixed costs from total sales revenue

What is the per unit contribution margin if the unit sales price is $50 and the unit variable cost is $20?

• $20

• $50

• $30

• $70

If a company sells one more unit, how does it affect the net operating income?

• It decreases by the amount of fixed costs

• It decreases by the unit variable cost

• It remains unchanged

• It increases by the unit contribution margin

What remains constant regardless of the number of units sold?

• Fixed costs

• Total sales revenue

• Contribution margin

• Variable costs

What does the contribution margin ratio indicate?

• The total fixed costs of a company

• The total variable costs of a company

• The total sales revenue of a company

• The percentage increase in net operating income for every additional dollar sold

How is the contribution margin ratio calculated using per unit values?

• By dividing unit sales price by unit variable cost

• By dividing unit contribution margin by unit sales price

• By subtracting unit variable cost from unit sales price

• By adding unit sales price to unit contribution margin