What is a good response to this post? Being that the big difference between the two margins is mostly in fixed costs, this plays a role in how each margin type is used. Gross margin is typically used for external reporting and contribution margin is often used for internal decision making. Gross Margins are helpful to compare to industry standards and is also used for overall profit analysis. When decisions are needed to be made at item specific levels, contribution margins can be more helpful. The help isolate just the variable costs for that particular product and you can model different specific changes and see how that affects the margins without taking into account fixed costs that can't be adjusted, Different industries have different needs and also very different fixed costs. Contribution management is very helpful for industries that have many types of products and need to analyze them individually, Gross margins may be more useful for companies with fewer products and less of a need to analyze with that detail.
What is a good response to this post?
Being that the big difference between the two margins is mostly in fixed costs, this plays a role in how each margin type is used. Gross margin is typically used for external reporting and contribution margin is often used for internal decision making. Gross Margins are helpful to compare to industry standards and is also used for overall profit analysis. When decisions are needed to be made at item specific levels, contribution margins can be more helpful. The help isolate just the variable costs for that particular product and you can model different specific changes and see how that affects the margins without taking into account fixed costs that can't be adjusted,
Different industries have different needs and also very different fixed costs. Contribution management is very helpful for industries that have many types of products and need to analyze them individually, Gross margins may be more useful for companies with fewer products and less of a need to analyze with that detail.
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