Cost, volume, profit analysis identifies a transaction’s “contribution’ to fixed costs. Explain the meaning of ‘contribution’ and...

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Accounting

Cost, volume, profit analysis identifies a transaction’s“contribution’ to fixed costs. Explain the meaning of‘contribution’ and discuss the usefulness of such analysis inmaking business decisions. (limit 120 words)

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Contribution Margin Contribution margin is an important concept in CVP analysis It represents the amount of revenues minus variable costs available to recover fixed costs Once the fixed costs have been recovered further increases in the contribution margin from increased sales volume flow straight to operating income CVP analysis is based on the assumption that there are two kinds of costs in producing a product fixed and variable Fixed costs do not change in total As long as the activity remains within the relevant range the level of production or sales has no effect on fixed costs Variable costs are costs per unit of production Variable costs change in total in response to fluctuations in the level of production or sales The difference between an items See Answer

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