Purchase Solution

Overhead as product cost? Contribution margin ratio?

Not what you're looking for?

Ask Custom Question

1. What is meant by a product's contribution margin ratio? How is this ratio useful in planning business operations? Give an example of a company and specific items that might go into the calculation of the contribution margin. Can break-even sales be calculated by using contribution ratio?

2. What arguments can be advanced in favor of treating fixed manufacturing overhead costs as product costs? What arguments can be advanced in favor of treating fixed manufacturing overhead costs as period costs? Which arguments do you find to be the most valid? Explain.

Purchase this Solution

Solution Summary

Your tutorial is 440 words and responds in everyday language suitable for a novice.

Solution Preview

What is meant by a product's contribution margin ratio?

The contribution margin is the sales price less the variable costs.

How is this ratio useful in planning business operations? Give an example of a company and specific items that might go into the calculation of the contribution margin.

The contribution margin gives you an idea of the incremental change when activity goes up or down. So, in decisions, you can predict the change in profits by analyzing the change in contribution margin or you can use the contribution margin to analyze what activity level is needed to achieve a certain profit target.
For example, if you have a product that sells for $5 each ...

Solution provided by:
Education
  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
Recent Feedback
  • "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
  • "Thank, this is more clear to me now."
  • "Awesome job! "
  • "ty"
  • "Great Analysis, thank you so much"
Purchase this Solution


Free BrainMass Quizzes
Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

Understanding Management

This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

Accounting: Statement of Cash flows

This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.