Gross profit means a firm’s revenue minus its cost of goods sold. The cost of goods sold consists of the fixed and variable product costs, but it excludes all of the selling and administrative expenses.
Don't use plagiarized sources. Get Your Custom Essay on
just from $13,9 / page
When analyzing a company, gross profit is so important because it directly indicates how efficiently management uses labor and supplies in the production process. Gross profit margin is gross profit as a percentage of revenue. Gross profit margin=(Revenue – COGS)/ Revenue. This metric can be used to compare a company with its competitors. More efficient companies will usually see higher profit margins. Contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products.
It is calculated as: (Product Revenue – Product Variable costs) Thus, the contribution margin includes two parts- the fixed cost and the net profit. Contribution Margin Ratio=(Product Revenue – Product Variable costs)/ Product Revenue Contribution Margin Ratio is used to determine the range of products to be produced by the company
Remember. This is just a sample.
You can get your custom paper from our expert writers