Dividing the unit contribution margin by the selling price calculates ____________?
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Answer: B. contribution margin percentage
Explanation
The contribution margin percentage shows the proportion of sales revenue available to cover fixed costs. Dividing the unit contribution margin by the selling price calculates this specific financial ratio. This metric helps business managers evaluate profitability and pricing strategies across different product lines. Unit contribution margin is calculated by taking the selling price and subtracting variable costs per unit. The resulting percentage expresses profitability relative to revenue rather than absolute dollar amounts. Businesses rely on this ratio to understand how revenue growth directly impacts operating income.
Managers use this percentage during budgeting sessions to forecast profitability under varying sales volumes. Retail companies monitor this metric closely when adjusting retail prices for competitive market positioning. Higher percentages indicate that a larger portion of each revenue dollar contributes to covering overhead. Fixed margin percentage is incorrect because fixed costs do not vary directly with individual unit sales. Variable margin percentage is incorrect because the ratio is named after the contribution margin concept. Breakeven margin percentage is incorrect because breakeven involves total costs rather than unit margins alone.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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