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Definitions from the WebContribution MarginDefinition: Contribution margin refers to the amount of money a business has earned after deducting the variable costs directly associated with producing goods or services. Sense 1 (Accounting): In accounting, contribution margin is a crucial metric used to assess the profitability of a specific product or service. It is calculated by subtracting the variable costs, such as raw materials or direct labor, from the revenue generated by the product or service. Example sentence: The contribution margin of Product A was higher than that of Product B, indicating its profitability. Sense 2 (Financial Analysis): In financial analysis, contribution margin helps evaluate the overall financial health and profitability of a business. By comparing the contribution margin to fixed costs, businesses can gauge how much revenue is available to cover the fixed expenses and generate profit. Example sentence: The contribution margin of the company was satisfactory, indicating its ability to cover fixed costs and generate profits. Sense 3 (Management Decision-making): Contribution margin analysis aids management in making informed decisions related to product pricing, cost control measures, and resource allocation. It allows businesses to identify the profitability of different products or services and adjust strategies accordingly. Example sentence: By analyzing the contribution margin, the management decided to increase the price of the product to enhance profitability. Related products on Amazon: - Books on Contribution Margin in Accounting- Books on Contribution Margin in Financial Analysis | ||||
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