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What is direct margin?

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Anonymous

15y ago
Updated: 8/16/2019

Pure butter

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15y ago

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How do you calculate Direct Margin as a percentage?

(selling price - direct cost)/selling price = direct margin


What is the Meaning of direct margin?

Direct Margin is the ratio of (Sales - direct costs)/Sales or (Sales - direct material - direct labour)/Sales


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Sales minus Prime cost = Prime Margines. Direct material and direct labor are often referred to as prime cost.


Must be subtracted from sales to reach the contribution margin?

To reach the contribution margin, variable costs must be subtracted from sales revenue. These variable costs include expenses that fluctuate with production levels, such as direct materials, direct labor, and variable manufacturing overhead. The contribution margin represents the portion of sales revenue that contributes to covering fixed costs and generating profit. Thus, understanding and managing these variable costs is crucial for assessing profitability.


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