Contribution to Sales Ratio in Break-Even Analysis

Steps:

• Define contribution to sales ratio as (contribution margin / sales revenue) × 100.
• Recall contribution margin = sales - variable costs.
• Apply formula: break-even sales = fixed costs / contribution to sales ratio.
• Confirm ratio determines sales needed to cover fixed costs.

Why A is correct:

• The ratio directly calculates break-even point by dividing fixed costs by it, per standard cost-volume-profit analysis.

Why the others are wrong:

• B: Overhead absorption rate uses predetermined rates based on activity levels, not contribution ratios.
• C: Profit for the period comes from total revenues minus all costs, not isolated ratios.
• D: Inventory value uses methods like FIFO or absorption costing, unrelated to contribution ratios.

Final answer: A