ECONOMICS

Detailed explanation-1: -A key characteristic of the contribution margin is that it remains fixed on a per unit basis irrespective of the number of units manufactured or sold. On the other hand, the net profit per unit may increase/decrease non-linearly with the number of units sold as it includes the fixed costs.

Detailed explanation-2: -Contribution margin explains how growth in sales can affect growth in profits. To calculate the margin, you subtract variable costs (like shipping expenses) from sales revenue-the remaining amount of revenue covers fixed expenses (like rent). Any revenue left after fixed expenses is profit or earnings.

Detailed explanation-3: -As contribution margin excludes fixed costs, the amount of expenses used to calculate contribution margin will likely always be less than gross margin. The total of net revenue for both is the same.

Detailed explanation-4: -The contribution margin is the amount of money a business has to cover its fixed costs and contribute to net profit or loss after paying variable costs. It also measures whether a product is generating enough revenue to pay for fixed costs and determines the profit it is generating.

Detailed explanation-5: -If the fixed costs for a firm increase, the contribution margin remains unaffected because the contribution margin is ascertained by deducting the total variable cost from the sales revenue.