ACCTG 101 Lecture Notes - Lecture 21: Contribution Margin, Liquid Oxygen
Document Summary
Lo1 the contribution margin and its uses. Gross profits are the difference between sales and cogs. However, because cogs includes both fixed costs and variable costs, the behaviour of cogs and gp is difficult to predict when production increase or decreases. In contrast, the contribution margin profit and loss statement is constructed by behaviour rather than by function. As you can see, although the net profit is the same for both statements, the traditional statement focuses on the function of the costs, whereas the contribution margin profit and loss statement focuses on the behaviour of the costs. In the traditional profit and loss statements, cogs and selling, general and administrative costs include both variable and fixed costs. In the contribution margin profit and loss statement, costs are separated by behaviour rather than by function. This also means, however, that the contribution margin profit and loss statement combines product and period costs.
