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Gross Margin Versus Contribution Margin

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When making decision why is it important for managers to distinguish the gross margin and contribution margin? Please explain?

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Solution Summary

This solution discusses why it is important for a manager to distinguish between the firm's gross margin and contribution margin when making decisions.

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Management's job is generally to plan future production, budget funds to meet the needs of that production, and evaluate how well it has adhered to that budget after the budgeting period is over. Costs are generally classified as fixed (i.e., their total amount does not change over a relevant range of production), variable (i.e., their total amount changes over a relevant range of production), or ...

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