Final answer:
The contribution margin in CVP analysis represents the dollars each additional item sold will provide to cover fixed costs, not the per item profit nor the pricing strategy.
Step-by-step explanation:
The contribution margin is a key component in CVP analysis, which stands for Cost-Volume-Profit analysis. Answering the student's question: the contribution margin represents (c) The dollars each additional item sold will provide to cover fixed costs. It is not the profit per item sold (a), the price we should set for our items (b), and it is indeed a defined concept in accounting and management (so not d).
When conducting a CVP analysis, the contribution margin is used to determine how much of the revenue from each unit sold goes towards covering the company's fixed costs. Once the fixed costs are covered, the remaining amount contributes to the company's profit. It is calculated by subtracting the variable costs per unit from the sale price per unit. Therefore, it is important to understand that contribution margin is about covering fixed costs and contributing to profit margin after reaching the break-even point.