Contribution Margin And Breakeven Analysis
Contribution Margin and Breakeven Analysis
Contribution margin is defined as total revenue from a product or service less the total variable cost. When the confectioner from Charlotte approaches Aunt Connie's with a bulk order for a million packs of real mint cookies, Maria should use cost-volume-profit analysis to decide which cookie's production to reduce in order to free up enough capacity to accept the bulk order. Cost-volume-profit analysis provides useful information concerning sales that are necessary to in order to break even or to earn a target profit. This analysis illustrates how profit is affected when the costs, volume, or prices of products or services are changed. Maria should calculate either lemon crème cookies or real mint has a greater contribution margin per unit. Contribution margin per unit is defined as contribution per unit divided by price per unit. Since lemon crème cookies production has a higher contribution margin per unit, Maria should accept......
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