BUS 5110 MANAGERIAL ACCOUNTING

Discussion Assignment-03
Topics: In the discussion forum you are expected to participate often and engage in deep levels

of discourse.  Please post your initial response by Sunday evening and continue to participate

throughout the unit. You are required to post an initial response to the question/issue presented in

the Forum and then respond to at least 3 of your classmates’ initial posts.  You should also

respond to anyone who has responded to you. 

Your Discussion should be a minimum of 250 words in length and not more than 450 words.

Please include a word count. Following the APA standard, use references and in-text citations for

the textbook and any other sources. 

Refer to the manufacturing company you selected for the Unit 2 Discussion and explain how you

would determine the company’s contribution margin and contribution margin percent. In your

initial post include the following:

 Identify which specific variables should be included in the calculation.

 Illustrate your explanation by calculating the contribution margin and contribution

margin percent using hypothetical values.

 Explain what your calculated results tell you about the company’s sales and cost

structure.

Discussion
Contribution margin is a vital notion because it is important in boosting a product's profit. It can
also help in obtaining a thorough picture of a company's profitability, as comprehending such
data can lead to the possibility of introducing a mix of business sales in the future.
Organizations forecast the contribution of product profit throughout the product lifecycle in
order to prepare for long-term success. “Contribution margin is a conceptual number reflecting
the amount available from each sale, after deducting all variable costs associated with the units
sold. Some of these variable costs are product costs, and some are selling and administrative in
nature. The contribution margin is generally a number calculated for internal use and analysis; it
does not ordinarily become a part of the externally reported data set” (Walther & Skousen,
2009). According to Investopedia (2020), contribution margin is the incremental money
generated after deducting the variable costs from the sales revenue.

The sales revenue, which is the total value gained from the sale of the company's product, is the
first and most essential portion of the equation (LaMarco, 2018). Variable costs are expenses that
a company incurs as a result of producing and selling a product or service.

In this discussion unit-2, I talked about a USFDA approved pharmaceutical company (Beximco
Pharmaceuticals Ltd.) which is situated in my homeland Bangladesh. To compute the
contribution margin, all costs must first be classified as either fixed or variable. Fixed costs, such
as rent, are expenditures that do not fluctuate regardless of the volume of production, whereas
variable costs, such as direct materials, alter with the level of change in output.

Contribution Margin=Sales Revenue − Variable Cost

Contribution margin ratio can also be calculated as:

Contribution margin ratio= (Revenue - Variable costs) / Revenue

Contribution Margin Percentage= (Sales Revenue − Variable Cost) X100/Sales Revenue

According to annual report (2020-2021) of Beximco Pharma (2021),

Net Sales revenue = 26,949,351,606 BDT.

Variable cost =10,900,600,560 BDT

So, Contribution Margin = Sales Revenue − Variable Cost = 16,048,751,046 BDT

Contribution margin ratio = (Revenue - Variable costs) / Revenue=0.6

Contribution Margin Percentage =60%

From the above illustration we can say that the contribution margin is positive. The higher the
percentage of a result that is close to 100%, the better for the firm. It means that after covering its
fixed costs, the company can make a profit. According to Estevez (2020), it explains how
contribution margins can be used to separate fixed costs and profit segments arising from product
sales, and how they can be used to determine a product's selling price scale, the profit levels
required from sales, and the structure of sales bonuses paid to sales team members,
businesspeople, or commission agencies. The contribution margin ratio and percentage are useful
for administration when performing a break-even analysis.

To summarize, many executives consider profit margin before making any major business
decisions. It is critical for them since it helps them determine which of the company's items are
more successful and so more profitable to produce.

References:
1. Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Retrieved
from https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/
Accounting/managerial-and-cost-accounting.pdf
2. Investopedia (2020, December 22). Contribution margin definition. Retrieved from
https://www.investopedia.com/terms/c/contributionmargin.asp
3. Annual Report (2020-21) (2021, November 30). Beximco Pharma. Retrieved
from https://beximco-pharma.com/investor/annual-report-2020-21.pdf
4. LaMarco, N. (2018). What is a Contribution Margin Percent? Retrieved from
https://smallbusiness.chron.com/contribution-margin-percent-17724.htm
5. Estevez, E. (2020, December 22). Understanding Contribution Margins. Retrieved
from https://www.investopedia.com/terms/c/contributionmargin.asp