Contribution margin and segment reporting available to
use in managerial accounting for responsibility accounting and performance
measure. Both are very important terms and we describe them through subtracting
form revenue.
The
Contribution margin is a term which we use to evaluate the performance in
responsibility accounting. That focus on control ability which is opposed to
the gross margin approach and using in the external reporting.
Contribution
margin can be define to subtract the revenue form variable costs both in
manufacturing and selling and administration expenses.
Contribution margin = Revenue
- Variable Costs (Both manufacturing, Selling
& Administration expenses)
TheContribution margin measurement means the profitability measurement of a
product. It can be expressed as a dollar amount per unit or as a ratio. The
Contribution margin approach lends itself to appropriate sales or revenue and appropriate sales or revenue cost analysis.
Gross margin
show us the percent of total sales revenue that the company achieved after the
spending of the direct cost over the goods and services it sells. The higher
the percentage of the gross margin show us the level of the company
profitability after every economic activity.
Gross
Margin (%) = Revenue – COGS / Revenue.
The Segment
is the product line, geographical area or other meaningful representation of
the organization.
SegmentMargin = Segment Revenue – Variable Cost – Avoidable Fixed Cost
Administration
central cost allocation is a fundamental
issue in responsibility accounting. It is based on budget revenue or
contribution margin. The central administrative or other fixed cost are not
allocated, responsibility centers to reach
their profit or fixed cost contribution margins.
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