How is contribution margin defined?

Contribution margin is defined as the difference between sales revenue and variable costs. This represents the amount available to cover fixed costs and generate profit after accounting for the costs that vary directly with production levels. In essence, the contribution margin helps businesses understand how much revenue is contributing to fixed costs and profitability after accounting for the direct costs of producing goods or services.

The concept is crucial for decision-making within a business, as it allows managers to evaluate the impact of sales volume on profitability. By focusing on variable costs, businesses can determine how changes in production levels will affect overall profitability and assess their breakeven point.

This understanding of contribution margin is pivotal in various strategic decisions like pricing, budgeting, and cost management, making option C the accurate definition among the choices provided.