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Peer Post to Comment on: Due by Wed. Nov. 1st

1.) Tamara Marquis posted Oct 28, 2017 3:42 PM

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In the production of kitchen scales the fixed costs include factory rent, utilities, supervisor salaries, and insurance; the variable costs would include raw materials to make product, packaging materials, and employee salaries.

 

The contribution margin is the amount of money made from the selling of a product after subtracting all variable costs. It is the amount that is left over to pay all fixed costs and provides profit (Argosy, 2017). The way to calculate this for my division would be to multiply the number of scales sold by the price they were sold for which would equal revenue, then subtract the variable costs from the revenue.

There are many different types of decisions that can be made by looking at the contribution margin. By knowing what the contribution margin is I would be able to determine if the selling price of the scales is enough to cover the variable costs and leave room for making profit; this would also help to determine if it would be feasible to lower the selling price and in turn increase the amount of sales; by determining what each scales per-unit contribution margin is. Another way of using the contribution margin would be to see how our costs would be affected by increasing and decreasing what is paid for materials needed to make the products and how would change each unit’s per-unit contribution margin and also how it will affect profit. By understanding the contribution margin I know how much is left to cover the fixed costs based on current sales revenue which would determine if there is room to increase those fixed costs such as more advertising expenses and still leave room for profit.

 

Argosy. (2017). Methods of CVP Analysis. Principles of Management Accounting. Retrieved from https://myclasses.argosy.edu/d2l/le/content/10961/viewContent/259234/View

2.) Tramaine Ashford posted Oct 28, 2017 4:42 PM

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As you may know fixed costs are costs that stay the same. Fixed costs for this entity would be the rent/mortgage, electricity, and water. For variable costs it would be for advertising and promotional purposes.

Contribution margin is defined as the selling price minus variable cost, which is a measure of the ability of a company to cover variable costs with revenue. Therfore I would minus the cost spent from the revenue increased , which would also give me the profit of revenue earned.

Decisions made for this division could be determined by the cost of producing services. Examples of using contribution margin are the cost of the service and the advertising of the services.