Ace the CLEP Marketing Test 2025 – Market Your Skills to Success!

Question: 1 / 400

What does fixed cost contribution per unit represent?

Selling price minus fixed costs

Selling price minus variable cost per unit

Fixed cost contribution per unit represents the amount that each unit sold contributes to covering fixed costs after taking into account the variable costs associated with producing that unit. This concept is essential for understanding how pricing strategies and cost structures impact profitability.

When calculating fixed cost contribution per unit, the formula considers the selling price of the product and subtracts the variable costs per unit. This calculation provides insight into how much of the sales revenue from each unit can be allocated towards fixed costs, which do not change with the level of production or sales volume.

By focusing on the contribution margin, businesses can make informed decisions regarding pricing, production levels, and cost management. It helps in identifying how many units need to be sold to cover fixed costs before any profit can be realized. This is a pivotal metric in cost-volume-profit (CVP) analysis.

The other options do not accurately reflect the definition of fixed cost contribution per unit. Selling price minus fixed costs does not provide information on per unit contribution but rather looks at total costs. Fixed costs divided by total units sold also does not provide the contribution margin but represents an average fixed cost per unit. Variable costs per unit sold alone do not provide a contribution measure related to fixed costs, as they focus solely on variable costs.

Get further explanation with Examzify DeepDiveBeta

Fixed costs divided by total units sold

Variable costs per unit sold

Next Question

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy