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### 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 ...

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