Compute and interpret the contribution margin ratio using the following data: sales, $5,000; total variable cost, $3,000.
The contribution margin ratio is 0.40 or 40%.
The contribution margin is the financial metric reflecting the profit generated from the sales revenue over the variable cost incurred in the production process.
The left column lists several cost classifications. The right column presents short definitions of those costs. In the blank space beside each of the numbers in the right column, write the letter of the cost best described by the definition.
A. Total cost
1. This cost is the combined amount of all the other costs.
B. Mixed cost
2. This cost remains constant over a limited range of volume; when it reaches the end of its limited range, it changes by a lump sum and remains at that level until it exceeds another limited range.
C. Variable cost
3. This cost has a component that remains the same overall volume levels and another component that increases in direct proportion to increases in volume.
D. Curvilinear cost
4. This cost increases when volume increases, but the increase is not constant for each unit produced.
E. Step-wise cost
5. This cost remains constant overall volume levels within the productive capacity for the planning period.
F. Fixed cost
6. This cost increases in direct proportion to increases in volume; its amount is constant for each unit produced.
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