# The difference between sales price per unit and variable cost per unit is the:

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## General guidance

Concepts and reason

Contribution margin per unit: Contribution margin is the amount above the variable cost included in the selling price. It is obtained by deducting the variable cost per unit from the selling price.

The margin of safety: This is the sales volume above breakeven sales which earns profit for the company after recovering all the fixed cost incurred during the period. Higher margin of safety is better for the company.

High-Low Method: This method is used to compute variable cost and fixed costs combined with a mixed cost. Under this method, lower activity cost is deducted from the higher activity cost and then it is divided by the value obtained from the deducting lower activity units from the higher activity unit to find the variable cost per unit. After deducting the total variable cost from the mixed cost fixed cost is obtained.

Fundamentals

Fixed costs: These costs do not vary with change in the level of activity. Fixed cost remains the same for the period. If there is an increase in the activity level, then the fixed cost per unit decreases and if there is a decrease in the activity level then the fixed cost per unit increases. Fixed cost per unit changes with the change in the activity level.

Break-even point (BEP): Break-even point (BEP) is a situation at which a company earns no-profit and no-loss. BEP denotes the required number of units to recover the fixed expenses incurred. BEP unit denotes the number of units required to sell to earn contribution equal to its fixed costs. Break-even sale in dollars is equal to the fixed cost.

Cost behavior: It is a defined relation between cost and volume. It could be shown on the scatter diagram or other diagrams. This is for the relation between variable costs and volume. It shows the change in the variable cost, fixed cost, and total cost with respect to change in the volume.

## Step-by-step

### Step 1 of 3

Determine the correct option for the difference between selling price per unit and variable cost per unit:

The difference between selling price per unit and variable cost per unit is called contribution margin per unit.

The difference between selling price per unit and variable cost per unit is called contribution margin per unit.

### Step 2 of 3

Determine the correct option regarding the margin of safety:

The margin of safety is expected sales over breakeven sales.

The margin of safety is expected sales over breakeven sales.

The margin of safety is not expected sales over variable costs, expected sales over variable cost are called total contribution margin. The margin of safety is not fixed cost over expected sales, fixed cost over sales value is treated as a loss. The margin of safety is not breakeven sales over expected sales, if breakeven sales are more than the expected sales then there is not any margin of safety. The margin of safety is expected sales over breakeven sales as it provides the contribution margin as the profit for the company. The margin of safety is also considered as the sales above breakeven sales, it is calculated by deducting breakeven sales from the total expected sales value.

### Step 3 of 3

Determine the correct option regarding cost-behavior in the scatter diagram:

In the scatter diagram, the high-low method estimates cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line.

In the scatter diagram, the high-low method estimates cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line.

Scatter method does not estimate cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line, it a data presentation method. The least square method does not estimate cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line, but it is used for regression analysis. The breakeven method does not estimate cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line, but it shows the relationship between the margin of safety, the variable cost, total cost, breakeven point, and fixed cost.

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In the scatter diagram, the high-low method estimates cost behavior by connecting the costs linked to the highest and lowest volume levels on a scatter diagram with a straight line. High-low method helps in finding out the variable costs involved in the process. It shows a relationship between volume levels and variable cost in a straight-line as the change in variable cost is directly proportional to the volume level. 