What is the difference between Gross margin and Contribution margin?
Contribution margin refers to the amount of profit from a sale after deducting variable expense. Variable expenses are those that are tied directly to the volume of sales. Example of variable expenses are direct materials, direct labor and the taxes and benefits for direct labor, production supplies, etc. Gross margin is the profit from sales after deducting both variable and fixed expenses. Fixed expenses would be items like mgmt salaries, utilities, property taxes, depreciation, etc. They generally stay the same regardless of sales volumes.
