- 1 Marks
Question
Which of the following is NOT true about contribution?
A. Contribution equals sales minus variable costs
B. Contribution equals profit plus fixed costs
C. Zero contribution means total sales equal total variable costs
D. Contribution equals net profit
E. If total contribution fails to cover fixed costs, the result is a loss
Answer
Answer: D
Explanation:
The correct answer is D. Contribution is defined as sales minus variable costs. It is used to cover fixed costs, and any surplus contributes to profit. Contribution is not the same as net profit, as fixed costs must still be deducted to arrive at net profit.
- Tags: Contribution, CVP Analysis, Profit and Loss
- Level: Level 1
- Topic: Cost-Volume-Profit (CVP) Analysis
- Series: MAY 2021
- Uploader: Kwame Aikins