Multiple Choice
The break-even point is where ______.
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4. Merchandising Operations
Net Sales
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Which of the following best describes the result of 'sales revenue minus all variable expenses'?
A
Contribution Margin
B
Operating Income
C
Net Sales
D
Gross Profit
Verified step by step guidance1
Understand the concept of Contribution Margin: Contribution Margin is the amount remaining after subtracting all variable expenses from sales revenue. It represents the portion of sales revenue that contributes to covering fixed costs and generating profit.
Review the formula for Contribution Margin: Contribution Margin = Sales Revenue - Variable Expenses. This formula highlights the relationship between sales revenue and variable costs.
Differentiate Contribution Margin from other terms: Operating Income is the profit after deducting all expenses (both fixed and variable). Net Sales is the total sales revenue after deducting returns, allowances, and discounts. Gross Profit is the difference between sales revenue and the cost of goods sold (COGS), which may include both fixed and variable costs.
Apply the definition to the problem: The phrase 'sales revenue minus all variable expenses' directly aligns with the definition of Contribution Margin, as it focuses on the revenue left after covering variable costs.
Conclude that the correct answer is Contribution Margin based on the explanation and formula provided.
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