Is contribution margin part of financial accounting or managerial accounting, or both?
Eva Keysuhr
- Is contribution margin part of financial accounting or managerial accounting, or both?
Contribution margin is the contribution to fixed expenses and operating income from the sales of products or services (Marshall et al., 2020). This can be used in both managerial and financial accounting. By understanding financial patterns, both managers and investors can benefit. Managerial accounting focuses on internal financial processes. By understanding contribution margin you can forecast future expenses and understand where money is being spent. Financial accounting can benefit from contributions margin as this type of accounting focuses on past finances.
- What kinds of costs, such as packaging, might be easy to forget when calculating production costs and contribution margin? Provide any examples that you may have witnessed in the past.
Costs such as actual manufacturing might be easy to forget. This would include any materials needed to create the item along with staffing involved in that process.
- Discuss the risk to the company of miscalculating contribution margin.
Miscalculation of contribution margin can create deficiencies in financial reporting. A company may project more revenue than they will actually make if a contribution margin is incorrect. Contribution Margin can be used for financial planning and decision making in a company. If these numbers are wrong, it can negatively impact company operations,.
- Find or create an example of a contribution margin. If the contribution margin per unit increases, how does this affect the break-even point in terms of units sold?
The breakeven point is in short what the firm needs to make to break even. This means the firm made no profit and no loss with that product. If the contribution margin per unit increases, the revenue of each unit sold increases. Therefore, the break-even point will decrease.
Marshall, D., McManus, W., & Viele, D. (2020). Accounting: What the numbers mean (12th ed.). New York, NY: McGraw-Hill. Available in the courseroom via the VitalSource Bookshelf link
Deja’Lynn Hicks
The contribution margin can be stated on a gross or per-unit basis and represents the money generated for each product sold after deducting the variable portion of the firm’s costs (Team, 2021). I would say contribution margin is a part of managerial accounting because it’s how much money you make on each item you wouldn’t share that info with the public. Managers may quickly forget some costs of labor wages, supplies, shipping costs, and sales commissions to employees. I didn’t think about ink or paper when I was calculating production costs for my business.
Calculating wrong values can result in problems arising in other company areas and have a negative impact on profitability (Team, 2021). Miscalculating the contribution margin can lead to cutting the wrong products out of the business and an inaccurate calculation will lead to uninformed decision making.
When you increase the contribution margin of the products you sell, you decrease the costs and expenses associated with each product and increase the amount of revenue each product generates (Carty, 2017). Which creates a decrease in your break-even point.
Contribution Margin = Sales Revenue − Variable Costs
Say a machine for manufacturing ink pens comes at a cost of $10,000. Manufacturing one ink pen is $0.6 per unit (Team, 2021).. The per-unit cost will then be computed as $16,000/10,000 = $1.6 per unit. If each ink pen is sold at a price of $2 per unit (Team, 2021).
($2.0−$1.6) = $0.4 profit per unit
References
Carty, S.-L. (2017, November 21). How the contribution margin decreases the break-even point. Small Business – Chron.com. Retrieved November 2, 2021, from https://smallbusiness.chron.com/contribution-margin-decreases-breakeven-point-24036.html.
The team, T. I. (2021, October 22). Understanding contribution margins. Investopedia. Retrieved November 2, 2021, from https://www.investopedia.com/terms/c/contributionmargin.asp.
Estimating or Testing
Jama Bradley
RE: Estimating or Testing
Good thoughts David.
Lots of organizations get information from data warehouses and data services these days. Amazon has a data service. As does Qualtrics and many others.
The CDC and federal government has large data warehouses that we can get permission to use.
Knowing how to begin to learn about and explore the data we get from others are important skills if our research and analytic efforts are to be productive.
Do you know much about data warehouses?
Jama
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