Contribution Margin Assignment

Added on - 21 Apr 2020

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V2017.T4. 1.0FNS50215 Diploma of Accounting/ FNSACC507/ 2017/ T4/ / Online Learning / WK 2Page1of4
TaskWhat does contribution margin reveal about a company’s cost structure?Contribution margin is the dollar contribution of the manufacturing company in its process.Contribution margin per unit is calculated through deducting the total amount of the variablecost into the total sales amount of the company. This contribution margin could becalculated through the below given formula:Contribution margin per unit = sales price per unit - variable cost per unitThis contribution margin helps an organization to manage and administer the variousdecisions of the company. It helps the company to analyse that how the performance and theposition of the company could be revealed (DRURY, 2013).This process helps the company to reveal about the cost structure of the company as thecontribution margin impact over the various decisions and the breakeven level of thecompany. Breakeven level is the point where the company would not have to face any kindof loss and the profit as well. This assist the company to identify the total cost of thecompany and it also assist the company to make some better decisions about theperformance and the stability of the company.Contribution margin is the marginal profit of the company per unit. It is a usefulmeasurement to analyse various calculations and it is also useful for the company to analysethe operating leverage (Bhimani et al, 2008).It is quite different from gross margin and thus it helps the comapny to analyse that howmuch variable cost would be there in the company’s activity. It depict that the contributionmargin and the variable cost is equal to the sales per unit and thus it makes it easier for theorganizations and the manager to analyse that how much variable cost would be there whileproducing or doing some operational activities. It depict that it becomes important for theV2017.T4. 1.0FNS50215 Diploma of Accounting/ FNSACC507/ 2017/ T4/ / Online Learning / WK 2Page2of4
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