Running head: DANSHUI PLANT NO.2

Danshui Plant No.2
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DANSHUI PLANT NO.2

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1). Explain briefly contribution margin. How is it calculated?
An accounting contribution margin refers the revenues less variable expenses. This implies that it reveals how much a company's revenues contribute strictly to the company's fixed expenses . The total amount for the company, the amount for each product line, the amount for a single unit of product, and as a ratio or percentage of net sales are the most important concepts in the presentation of the contribution margin. The contribution margin can be presented as 1) the total amount for the company, 2) the amount for each product line, 3) the amount for a single unit of product, and 4) as a ratio or percentage of net sales (Libby, Libby and Short, 2011).
There is a form of management accounting known as cost-volume-profit analysis. It, the contribution margin, that is, the marginal profit per unit sale, is a very vital quantity in determining various calculations. For this reason, it also applies in the measurement of the operating leverage. Typically, contribution margins on a lower scale are normally evident in the labor-intensive tertiary sectors. On the other hand, it is in the capital-intensive industrial sector that we witness high contribution margins being prevalent (Kaplan and
Atkinson, 2005.).
In the case of a manufacturer, the contribution margin is the total amount of excess net sales in the excess of the variable manufacturing costs and the other expenses like the variable SG&A ones. To illustrate this issue further, we assume the manufacturer has only a single product and strictly 80,000 units were the produce and the manufacturer realized the sales during a recent year. The selling price to be $10 per unit, variable manufacturing costs