If total revenue is $9000 and total variable cost is $2000, the contribution margin will be ___________?
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Answer: D. $7,000
Explanation
Contribution margin is total revenue minus total variable costs. Subtracting $2000 in variable costs from $9000 in revenue leaves $7000. This amount represents funds available to cover fixed expenses and profit. Contribution margin focuses entirely on variable costs associated with revenue generation. Fixed costs are excluded because they do not change with sales volume in the short term. It highlights the profitability of core operations.
Managers use contribution figures to evaluate whether to accept special customer orders. If revenue exceeds variable costs, the order makes a positive contribution. It is a cornerstone of short-term managerial decision-making. Option A incorrectly adds revenue and variable costs together. Option B yields a negative value, misinterpreting the revenue relationship. Option C incorrectly halves the net contribution amount.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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