Difference Between Product Revenue And Variable Cost

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Introduction Background Contribution margin is one of the vital tools utilized throughout the Capsim simulation and business operations in general. Bushong and Talbolt (2001) summarizes the contribution margin ratio as the difference between product revenue and variable cost, over variable cost. Recommendations under the Capsim simulation advised that groups maintained a contribution margin no less than 30% as this will aid in long-term business profitability and sustainability (Capsim, 2014). Through the successful understanding and implementation of the contribution margin analysis, business leaders can effectively make decisions regarding price, labor and sales, both pre and post product distribution, that can heavily impact short-term and long-term profit (Spaller, 2006). Problem Statement Business leaders, and in particular those from the Capsim simulation, who strategize to achieve optimal contribution margin will ultimately have greater profitability and sustainability. The difficulty in accomplishing this vision is that costs for both human and product resources will continue to increase as customer expectations on product and price continue to fluctuate, all of which impact contribution margin (PR Newswire, 2006). However, if ongoing analysis and response to costs and customer fluctuations are adhered, increased contribution margins will have a positive impact on: 1. Increased profitability, 2. Sustained revenue, and 3. Encouragement for efficient

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