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Contribution Margin, Gross Profit, Managerial accounting

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1. What are the similarities between contribution margin and gross profit.
2. Steven started ZZ Tire Company 10 years ago. The company started as an installer and seller of tires. The company has now expanded to the point where they now manufacture tires in China to supply the retail stores. They have retail sales of over $10 Million a year. Right now, the only accounting that takes place is regular bookkeeping for tax purposes. The company performs no managerial accounting. Write out a couple of paragraphs where you tell Steven why he should implement managerial accounting, and explain to him what managerial accounting is. Go through basic points explaining why it is important to implement managerial accounting.

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Solution Summary

This solution of 240 words discusses similarities between contribution margin and gross profit as well as discusses benefits of managerial accounting. References used are included.

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Gross profit is the difference between sales and cost of goods sold. Contribution margin is sales per unit minus variable costs per unit. Both contribution margin and gross profit are similar in nature that these two allow a firm to make production decisions. In both the cases, the sales figure and variable expenses are used from the income statement and variable expenses are reduced. However, in the case of gross profit, the costs of goods ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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