From the course: Finance and Accounting Tips

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Contribution margin and the sales mix of products

Contribution margin and the sales mix of products

From the course: Finance and Accounting Tips

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Contribution margin and the sales mix of products

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- On the way to the studio today, I stopped at a recognizable fast food establishment to get some food, fast. Every time I go into this place, they're always trying to up size me. Larger drink, larger fries. - You don't want larger? You don't want bigger? - If I wanted bigger I wouldn't ordered bigger. Why do they do that? - Well dear brother, it's all about accounting. - What? What does a larger drink have to do with accounting? - To explain, let's step back for a moment and talk about a concept called contribution margin. - [Man On Right] Ah, I know what that is. The Contribution margin is the selling price of a product less the variable cost required to produce that product. The difference, the Contribution Margin, is then used to cover your fixed costs and once those costs are covered, the Contribution Margin becomes profit. - Exactly. Now you can use information about about selling price, variable costs, and fixed cost to compute the number of units required before a company…

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