# ADMS 1500 Lecture Notes - Lecture 7: Contribution Margin, Fixed Cost, Variable Cost

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22 Oct 2016
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## Document Summary

A variable cost is one that changes in response to changes in activity (output) The more products that are made, the greater will be the total dollar cost of each of these. A fixed cost is one that stays the same when activity (throughout) changes. All these stay the same dollar value no matter how much business is done. Some costs have both a variable component and a fixed component. The contribution margin per unit measures the advantage gained from selling one additional unit of product or service. It also measures the harm suffered when selling one unit fewer. Total sales revenue less: total variable cost (\$ per unit or % of revenue) Less: fixed cost: (a lump sum: \$ per month or year) = sausage + (cid:271)u(cid:374) + (cid:272)o(cid:374)di(cid:373)e(cid:374)ts + wrappi(cid:374)gs + (cid:862)(cid:272)o(cid:373)(cid:373)issio(cid:374)(cid:863) to operator. = cart rental + operator wage + cart transporting cost. = + + = (d)