Question

Economic impact of the inability to reach a target denominator level of activity would best be measured by which of the following?

a. the amount of the volume variance.
b. the contribution margin lost by failing to meet the target denominator level of activity.
c. the amount of the fixed overhead budget variance.

Answer 1

The economic impact of the inability to reach a target denominator level of activity is best measured by the contribution margin lost.

Step-by-step explanation:

The economic impact of the inability to reach a target denominator level of activity is best measured by the contribution margin lost by failing to meet the target denominator level of activity.

The contribution margin is calculated by subtracting variable costs from sales revenue. It represents the amount that contributes to covering fixed costs and generating profit.

Therefore, if a firm fails to meet the target denominator level of activity, it will lose some contribution margin, leading to a negative impact on its profitability.