Question

The contribution margin ratio explains the percentage of each sales dollar that

Answer 1

contributes towards paying fixed costs and increasing profits.

Step-by-step explanation:

the contribution margin ratio = (sales revenue - variable costs) / sales revenue

The contribution margin ratio measures how much does every extra unit sold contributes to pay for fixed costs and increase profits. Once the break even point is reached, every extra dollar sold increases profits in the proportion of the contribution margin ratio, e.g. contribution margin ratio is 35%, every extra dollar generates 35 cents in profits.

Answer 2

Explanation:

It is computed as Selling Price less Variable cost per unit.

This ratio explains in percentage form the amount of revenue that contributes towards fixed cost and generating a profit.