Question

why should a organization should focus on the contribution margin to determine throughput performance?

Answer 1

Contribution margin is calculated by selling price per unit minus variable cost per unit. A organization use two type of cost in operating, fixed cost and variable cost. fixed cost remains constant and cannot be changed with change in unit produce.

by using Contribution margin value management determines what percentage of total sale is variable cost. this value helps the manager in determine break even quantity. Also since fixed cost cannot chnaged so by using Contribution margin managers try to control variable cost to increase profitability.