BUS 5110 Unit 3 Portfolio Assignment: Contribution Margin Application

Ubong Akpekong

S261953

University of the People

During this week, our learning focused on using several cost analysis tools to determine how
well products contribute to a company’s profitability, that is how different cost behaviors
affects the company’s profitability, I learnt so much about how variable cost components in
an organization affects the profit of that organization directly as an increase in variable cost
directly gives rise to an decrease in contribution margin which in turn affects profitability.
(Javed, 2021)
In the course of this week’s discussion during studies, I was able to carry out some
computations to ascertain contribution margin and I discovered that some Managers have
standard methods for ascertaining a company's profitability. Determinding out how a specific
product or service adds to a company's profits, I explored the contribution margin and
contribution margin percentage, as well as make calculations using hypothetical values in the
context of a manufacturing organization which I chose in the previous units discussion, and
then I provided recommendations
I discovered that Contribution margin is an organization’s sales revenue less its variable
costs. The contribution margin is a method of finding profits. It discloses the total amount of
revenue available after variable costs have been deducted. Put differently, it is the part of
sales that aids in offsetting fixed costs and providing profit for an organization. The
contribution margin either computed in percentage or in monetary terms can be presented as
the total amount, amount for each product line, amount per unit product, or as a ratio or
percentage of net sales. (Al-Zweeni, 2019)
In my readings, I discovered that the the formula to ascertain contribution margin is :
Contribution Margin = Net Sales Revenue – Variable Costs.
The contribution margin ratio shows the amount of money available to cover fixed costs in
percentage terms. In my external readings during the week, I discovered that It is best for an
organization to have a high contribution margin ratio, since the higher the contribution
margin ratio, the more the profit and the more money per product sold is able to cover the
fixed cost of the company. In ascertaining the contribution margin percentage for an
organization, the formular below is used: Contribution Margin percentage (ratio) = (Net Sales
Revenue -Variable Costs) / (Sales Revenue) x 100. (Skousen, 2009)
In my discussion work, I decided to work with Dangote cement manufacturing company
which is a company based in my country. I found Break even points in quantity and in Value
for the company using hypothetical figures and during the written assignment, this assisted
me in computing the figures used in the main work.

This week’s studies has helped me so immensely as I will now be applying every knowledge
acquired to my small farm accounting for my livestock production so that I ensure I make
sales at a value above break even and also make profits, the specific variables I have to pay
attention to as they drive increase and decrease in contribution and breakeven are the sales
price and the variable costs of the company, I must conclude by saying that I have learnt so
much in this weeks studies and this will help me so much in the future studies and in my
private life.
REFERENCES
Al-Zweeni, M. &.-M. (2019, November). Cost Behaviour: Analysis and use. Retrieved from
ResearchGate.:
https://www.researchgate.net/publication/337000638_Cost_Behavior_Analysis_and_
Use
Heisinger, K. &. (n.d.). Accounting for managers.
Javed, R. (2021, December 01). Accounting for Management. . Retrieved from Variable,
fixed and mixed (semi-variable) costs. :
https://www.accountingformanagement.org/variable-fixed-and-mixed-costs/
Skousen, W. a. ( 2009). books.lardbucket.org. Retrieved from Managerial and Cost
Accounting.:
https://2012books.lardbucket.org/books/accounting-for-managers/index.html