The contribution margin approach is a vital component of management accounting and

used by manufacturing and non-manufacturing firms to ascertain the contribution of a specific

product and its profits performance. The contribution margin indicates how cost behavior

influences profitability. More specifically, the contribution margin approach enhances pricing

decisions for accounting users to know the exact price that is necessary to cover the variable cost

and fixed cost to generate profit (Spaller, 2006). According to Investopedia (2009), asserted a

contribution margin is a key approach used to determine break-even of manufacturing and non-

manufacturing firms.

The total contribution margin is “the difference between total sales revenue and total

variable expenses” (Hilton et al., 1994, p.278).

In my previous group discussion, I researched on Apple.Inc manufacturing cost

specifically on the product cost of “iPhone 11 Pro Max”. However, this assignment seeks to

focus on Apple’s contribution margin and contribution percent. Therefore, I would consider the

2019 annual financial report of Apple.inc. to further my discussion.

Brown (2020) found the cost of direct material associated with iPhone 11 Pro max,

“Screen $66.5, Battery $10.50, Triple Camera: $73.50, Processor, Modems, and Memory $159

Sensors, Holding Material, Assembly, and Other $181” (para. 5). The variable cost per unit of

iPhone 11 Max produced is $490.50.

Assuming the unit sale price of iPhone pro 11 max is $999 and 100 units of iPhone max

are produced. To obtain total sale revenue, multiple unit sale price by 100 units ($999*100). To

ascertain the total variable cost, multiple variable cost per unit by 100 units ($490.50*100).

Therefore, the total contribution margin can be determined by subtracting the total sale revenue
from the variable cost ($999*100 - $490.50*100) = $50,850. Therefore, the total contribution

margin of 100 units of iPhone pro 11 max is $50,850

To ascertain contribution margin ratio, the contribution margin is divided by the unit

sales price and when the ratio is expressed as a percentage is referred to as contribution margin

percentage (Hilton et al., 1994). Therefore, the contribution margin ratio can be calculated by

dividing the contribution margin by sale revenue (50,850/99900*100=51%). Therefore, the

contribution margin percentage is 51%.

 References
Brown, R. (2020, March 27). The Cost of Making an iPhone. Retrieved from

https://www.investopedia.com/financial-edge/0912/the-cost-of-making-an-iphone.aspx

Hilton et al. (1994). Managerial accounting (p. P97). New York, NY: McGraw-Hill.

Investopedia.(2009, July 21).What Does the Contribution Margin Tell You? Retrieved

https://www.investopedia.com/terms/c/contributionmargin.asp

Spaller, R. (2006). Leveraging contribution margin to gain a competitive advantage. Journal of

Performance Management, 19(2), 45.

Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. Bookboon.com