ECONOMICS

Detailed explanation-1: -The difference between total revenues and total variable costs is called contribution margin. This indicates why operating income changes as the number of units changes.

Detailed explanation-2: -Gross profit is the difference between total revenue and total variable cost.

Detailed explanation-3: -Contribution margin is a measure of the amount of revenue left over after subtracting the variable costs associated with producing a product or service. This measure is used to determine how much of each sale contributes to covering fixed costs and ultimately to the profit of the business.

Detailed explanation-4: -Contribution Margin = Revenue-Variable Costs That’s why it’s called “contribution” margin. It’s your gross profit margin minus any “variable” overhead expenses, like sales commissions. A business breaks even when contribution margin dollars equal fixed costs dollars.

Detailed explanation-5: -What is variable margin? Also known as the variable contribution margin or contribution margin, the variable margin refers to the margin that results from subtracting variable production costs from revenue. While variable margin accounts for a product’s variable costs, it doesn’t account for any associated fixed costs.