Revenues Minus Variable Expenses

By excluding all fixed costs the content of the cost of goods sold figure now changes to the following.

Revenues minus variable expenses. Operating profit is gross profit minus all other fixed and variable expenses associated with operating the business such as rent utilities and payroll. The contribution margin tells us how much of the revenues will be available after the variable expenses are covered for the fixed expenses and net income. The contribution margin ratio is a company s revenue minus variable costs divided by its revenue. It is the amount available to cover fixed costs to be able to generate profits.

The concept of contribution margin is fundamental in cvp analysis and other management accounting topics. Contribution margin refers to sales revenue minus total variable costs. Contribution margin cm or dollar contribution per unit is the selling price per unit minus the variable cost per unit. Contribution represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs.

Revenues minus variable expenses. Fixed overhead costs such as equipment depreciation and supervisory salaries an alternative to the gross margin concept is contribution margin which is revenues minus all variable costs of sales. In accounting contribution margin is defined as. Net sales gross sales customer discounts returns allowances gross profit net sales cost of goods sold operating profit gross profit total operating expenses net profit operating profit taxes interest net profi.