BUSINESS ADMINISTRATION
BUSINESS ECONOMICS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The difference between the selling price and the cost of sold goods
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It represents the incremental money generated for each product sold after deducting the variable costs
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The difference between the purchase price and the selling price
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The difference between the selling price and the cost of sales
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Detailed explanation-1: -The contribution margin can be stated on a gross or per-unit basis. It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm’s costs. The contribution margin is computed as the selling price per unit, minus the variable cost per unit.
Detailed explanation-2: -A business’s contribution margin-also called the gross margin-is the money left over from sales after paying all variable expenses associated with producing a product. Subtracting fixed expenses, such as rent, equipment leases, and salaries from your contribution margin yields your net income, or profit.
Detailed explanation-3: -The formula to calculate contribution margin: Contribution margin 1 = Sales – Cost of goods sold. Contribution margin 2 = Contribution margin 1 –Logistics and similar variable costs. Contribution margin 3 = Contribution margin 2 – Sales & Marketing costs. Each of the above can also be expressed as a % of sales.
Detailed explanation-4: -The contribution margin is the excess between the selling price of the product and the total variable costs. For example, if an item sells for $100, the total fixed costs are $25 per unit, and the total variable costs are $60 per unit, the contribution margin of the product is $40 ($100-$60).