Determine contribution margin
Course:- Finance Basics
Reference No.:- EM1349823

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Use the formula stated: Contribution Margin = Revenue - Variable Costs
(CM = R - VC)

Your top two Agents ... Let's call them ... Agent J and Agent K, both bring in two "must do deals" with new extraterrestrial ah ... accounts.

Agent J's is for $ 100,000 ... 50 units at sales price $2,000 per unit
Agent K's is for $ 50,000 ... 20 units at sales price $2,500 per unit

At first pass ... Agent J's looks to be the better proposal!

After all $100,000 is MORE than $ 50,000 right? And MORE is always better?

Variable cost is $1,900 per unit.
Yet when you run the numbers, using a Contribution Margin Statement, Agent
K's proposal is now the better deal ...

How can that be? What could be done to Agent J's proposal to make it better?


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