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# Contribution margin

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Use the formula stated: Contribution Margin = Revenue - Variable Costs
(CM = R - VC)

Your top two Agents ... Let's call them ... Agent J and Agent K, both
bring in two "must do deals" with new extraterrestrial ah ... accounts.

Agent J's is for \$ 100,000 ... 50 units at sales price \$2,000 per unit
Agent K's is for \$ 50,000 ... 20 units at sales price \$2,500 per unit

At first pass ... Agent J's looks to be the better proposal!

After all \$100,000 is MORE than \$ 50,000 right? And MORE is always better?

Variable cost is \$1,900 per unit.
Yet when you run the numbers, using a Contribution Margin Statement, Agent
K's proposal is now the better deal ...

How can that be? What could be done to Agent J's proposal to make it better?

#### Solution Preview

Use the formula stated: Contribution Margin = Revenue - Variable Costs
(CM = R - VC)

Your top two Agents ... Let's call them ... Agent J and Agent K, both
bring in two "must do deals" with new extraterrestrial ah ... accounts.

Agent J's is for \$ 100,000 ... 50 units at sales price \$2,000 per unit
Agent K's is for \$ 50,000 ... 20 units at sales price \$2,500 ...

#### Solution Summary

Contribution margin is determined.

\$2.19