Question

Which is a version of the profit equation that includes contribution margin per unit?

a. Net income = (Contribution margin per unit + variable cost per unit) - Fixed expenses
b. Net income = (Contribution margin per unit x variable cost per unit) - Fixed expenses
c. Net income = (Contribution margin per unit x fixed cost per unit) - Variable expenses
d. Net income = (Contribution margin per unit x number of units sold) - Fixed expenses

Answer 1

The version of the profit equation that includes contribution margin per unit is option d. Net income = (Contribution margin per unit x number of units sold) - Fixed expenses. Correct option is d.

Step-by-step explanation:

The correct version of the profit equation that includes contribution margin per unit is option d. Net income = (Contribution margin per unit x number of units sold) - Fixed expenses.

The contribution margin per unit represents the amount of revenue that is available to cover fixed expenses after deducting the variable costs per unit. By multiplying the contribution margin per unit by the number of units sold, you can calculate the total contribution to net income. Subtracting the fixed expenses gives the final calculation for net income.

For example, if the contribution margin per unit is $20 and the number of units sold is 100, the contribution to net income would be $20 x 100 = $2,000. If the fixed expenses are $500, the net income would be $2,000 - $500 = $1,500.