Final answer:
The assertion that a 30% contribution margin ratio means 70% of each sales dollar is available to cover fixed costs and produce a profit is false. The truth is, 30% of the sales revenue contributes to covering fixed costs and generating profits.
Step-by-step explanation:
The statement 'a contribution margin ratio of 30% means that 70 cents of each sales dollar is available to cover fixed costs and produce a profit' is false. A contribution margin ratio of 30% indicates that for every dollar of sales, 30 cents are available after variable costs have been covered to contribute towards fixed costs and profits. In other words, 30% of the sales revenue contributes to covering fixed costs and generating profits, not 70%.If a center earns revenues of $20,000 and variable costs are $15,000, then the contribution margin would be $5,000 ($20,000 - $15,000), which has to cover the fixed costs before generating profit. The center should continue in business if the contribution margin exceeds the fixed costs. This is a simplified analysis, and in a real-world scenario, additional factors such as average total cost, average variable cost, and marginal cost would also be considered alongside market structures to make strategic business decisions.Thus, the contribution margin is crucial for businesses in assessing their financial health and making informed decisions.