Importance of total contribution margin

- We were both born in Dugway, Utah,…a very interesting place,…but that's a story for another day.…- Let's use Dugway as the setting…for a hypothetical example.…Let's say that we are helping a friend…who owns and operates Wild Horse Wedding Announcements…in Dugway, Utah.…Because Wild Horse is the only wedding announcement…provider in town, our friend…has great latitude in setting prices.…- Our friend has been trying to set fair prices,…which means our friend has been pricing…each wedding announcement order…at cost plus $50.…The cost is $350 per order, so our friend…has been setting the price at $400 per order.…

The cost of $350 plus a profit of $50 per order.…- Now the problem is that even though…our friend is selling 40 orders per month,…he's losing about $2,000 per month.…Our friend's mistake is that when he…thinks of the word cost, he's only thinking…of his variable cost, the material costs…and hourly wages he must pay…for the completion of each order.…- He has $4,000 in fixed costs.…Building rent, insurance and so forth.…