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Management Accounting: Cost-volume-profit analysis · Contribution Margin and Break-Even Point

How contribution margin works and how to find the sales volume where a business stops losing money and starts earning it.

Management Accounting · 29 questions

Try 3 questions

1. What is a product's contribution margin per unit?

  1. Selling price minus variable cost per unit
  2. Selling price minus total cost per unit
  3. Selling price minus fixed cost per unit
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Answer: Selling price minus variable cost per unit

Contribution margin is what each unit leaves over after its own variable costs, available to cover fixed costs and then provide profit.

2. A product sells for 50 with variable costs of 30 per unit. Fixed costs are 40,000 a month. How many units must it sell to break even?

  1. 1,333 units
  2. 2,000 units
  3. 800 units
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Answer: 2,000 units

Break-even units equal fixed costs divided by unit contribution margin: 40,000 / (50 - 30) = 2,000 units.

3. A product sells for 80 and has variable costs of 60 per unit. What is its contribution margin ratio?

  1. 25%
  2. 33%
  3. 75%
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Answer: 25%

The ratio is unit contribution margin over price: (80 - 60) / 80 = 25%. Each sale of 100 in revenue contributes 25.

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