What is the formula for contribution margin?Select an answer:sales - SG&Asales - fixed costssales - variable costsales - CapEx

Break Down the Problem

1. Identify the relevant components needed to calculate the contribution margin.
2. Understand what contribution margin represents.

Relevant Concepts

The contribution margin is defined as the difference between sales revenue and variable costs. It contributes to covering fixed costs and generating profit.

Formula

The contribution margin can be expressed mathematically as:

$\text{Contribution Margin} = \text{Sales} - \text{Variable Costs}$

Analysis and Detail

• Sales refers to the total revenue generated from selling goods or services.
• Variable Costs are costs that change directly with the level of production or sales volume.

Key point: Selling, General and Administrative expenses (SG&A) and capital expenditures (CapEx) are not included in the contribution margin calculation since they do not vary directly with production levels.

Verify and Summarize

Considering the definitions and calculations, the correct answer from the provided options is:

• Sales - Variable Costs

Final Answer

The correct choice is sales - variable costs.