What does the Contribution to Sales (C/S) ratio represent?

What does the Contribution to Sales (C/S) ratio represent?

• A. Contribution divided by sales revenue
• B. Contribution per unit divided by selling price per unit
• C. Fixed costs divided by total costs
• D. Profit divided by sales revenue

Answer: (A)

The main idea is that the Contribution to Sales ratio shows how much of each sales revenue dollar is left after variable costs to cover fixed costs and contribute to profit. It is defined as Contribution divided by Sales revenue. You can also think of it per unit as Contribution per unit divided by selling price per unit—the two ways give the same ratio when prices and costs per unit stay constant. This ratio helps assess profitability and how changes in sales affect overall profit, and it underpins break-even analysis (fixed costs divided by the C/S ratio gives the sales needed to break even). It isn’t about fixed costs over total costs, and it isn’t the profit margin (profit divided by sales revenue).

The main idea is that the Contribution to Sales ratio shows how much of each sales revenue dollar is left after variable costs to cover fixed costs and contribute to profit. It is defined as Contribution divided by Sales revenue. You can also think of it per unit as Contribution per unit divided by selling price per unit—the two ways give the same ratio when prices and costs per unit stay constant. This ratio helps assess profitability and how changes in sales affect overall profit, and it underpins break-even analysis (fixed costs divided by the C/S ratio gives the sales needed to break even). It isn’t about fixed costs over total costs, and it isn’t the profit margin (profit divided by sales revenue).