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How does the total contribution margin (unit contribution margin X total number of units sold) differ...

How does the total contribution margin (unit contribution margin X total number of units sold) differ from the gross margin often seen on companies' financial statements?

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Answer #1
  • There is a difference between Contribution margin and Gross Margin. The difference is mainly in relation to Variable costing and Absorption Costing.
  • Conceptually:
    Contribution margin = Sales revenue – All Variable cost.
    Gross Margin = Sales revenue – Cost of Goods Sold.
  • Variable cost = Direct material, Direct Labor, Variable manufacturing overhead and Variable selling & admin expenses.
  • Cost of Goods Sold = Direct material, Direct Labor, Variable manufacturing overhead and Fixed manufacturing overhead absorbed.
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