HTM 2030 Lecture Notes - Lecture 3: Variable Cost, Gross Margin, Net Income

• School: University of Guelph
• Department: Hospitality and Tourism Management
• Course: HTM 2030
• Professor: Alison Crerar

Document Summary

Variable rate: is the variable cost percent expressed as a decimal. Contribution margin: is the amount remaining after variable costs have been paid. Once fixed costs have been paid, it is the profit. It can be expressed as a percent of sales, as a total dollar amount, or as a dollar amount per unit. Gross margin and gross profit: other way to say contribution margin and profit. Contribution rate: contribution margin expressed as a decimal, many people call it contribution rate or contribution margin percent. Cm = $ sales revenue - $ variable costs (product costs) Cm % (cr) = 100% - variable costs % Cm % (cr) = [($ sales revenue - $ variable costs) / $ sales revenue ] x 100% There are no mixed costs: the technique only considers quantitative or numerical factors, not qualitative factors. If the info does not comply with the assumptions the cvp may be wrong.