Business Analysis with Microsoft® Excel, Second Edition

Using Contribution Analysis for New Products

Several figures used in the previous section show that the contribution margin is calculated by subtracting a product's variable costs from its revenue. For example, in Figure 20.8, the contribution margin is $340,000. This is the result of subtracting the cost of goods sold ($279,500) and variable sales expenses ($117,000) from the sales figure of $736,500. The cost of goods sold is returned by this formula:

=Units_Sold*Variable_Cost

So the contribution margin is obtained by the combination of sales revenue, variable sales expenses, and the variable production cost. This in fact defines the contribution margin: it is the difference between sales revenue and variable costs and expenses. No fixed ...