The corporation should manufacture the good with the highest contribution margin per "input unit" when resources are limited and different products require different inputs.
The distinction between the gross margin and the cost of goods sold is one area that frequently causes misunderstandings (GM).
Gross Margin: This metric, which is created by dividing gross profit by sales, assesses the amount of income that remains after all direct expenses, such as cost of goods sold (COGS), have been deducted.
Contribution Margin (CM): The CM calculation's goal is similar to that of the CM, but it can be more thoroughly examined in terms of profitability for each individual item or product.
The gross margin number, on the other hand, measures profitability and includes all of the company's services and products.
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