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Contribution Margin: Deciding on Proposals

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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 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?

Signed "Frank the Pug"

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Solution Summary

Provides steps necessary to decide on a proposal.

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