Apple’s Contribution Margin and Contribution Margin Percent

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The contribution margin is revenue minus variable costs. A contribution margin is a conceptual number that reflects the amount available from each sale after deducting all variable costs associated with the units sold (Walther & Skousen, 2009).

Profit margin can be defined as the percentage of revenue that a company retains as revenue after expenses are deducted.

Specific Variables Should Be Included In The Calculation

For a company to be profitable, the contribution margin must exceed the sum of the fixed costs. The contribution margin can also be calculated per unit. The unit contribution margin is simply the remainder after subtracting the unit variable cost from the unit selling price. The contribution margin ratio is determined by dividing the contribution margin by the total sales. Therefore, the variables that should be included in the calculation are:

1. Fixed Cost: this type of cost refer to the costs of the business that do not change with an increase or decrease in the quantity of goods and services produced or sold. As for Apple, the fixed cost will be rent, insurance, taxes, administrative costs, and administrative salaries.
2. Variable Cost: these are expenses that change in proportion to production or sales. As for Apple, the variable cost will be materials and component cost, manufacturing cost, labour cost, licensing fee, Advertising, Sales, marketing, transportation, and operating expenses that is consists of Research & Development and SGA costs.

Contribution Margin And Contribution Margin Percent Calculation

Based on the analysis done by Macrotrends in 2022, it was known that Apple annual revenue for 2021 was $365.817B, a 33.26% increase from 2020 and Apple operating expenses for the quarter ending March 31, 2022 were $67.299B, a 8.41% increase year-over-year. These operating expenses consist of $48.186B cost of sales, $5.772B R&D, $5.616B SGA which are variable costs and $7.725B fixed costs (Barefigures, n.d.).

1. The contribution margin = revenue ( $365.817B) — variable cost ($48.186B + $5.772B + $5.616B) = $306.243B
2. Contribution margin percentage = (contribution margin ($306.243B) / revenue ( $365.817B)) *100% = 83.7%

Conclusion

By looking at Apple’s contribution margin calculation results, we can see that each dollar in sales contributes 83.7 cents ($0.837) to covering fixed costs and increasing profit. This means Apple has been successful to reduce its production cost to the point that it can generate maximum profit.

References

Barefigures. (n.d.). Cost and operating expenses | Apple | Bare figures. Bare Figures — Quarterly Results Visualized. Retrieved July 2, 2022, from https://barefigur.es/companies/apple/cost-and-operating-expenses/

Joe, A. (2014, March 7). Apple Inc. — Company information — Market business news. Market Business News. Retrieved June 24, 2022, from https://marketbusinessnews.com/apple-inc-company-information/14919/

Macrotrends. (2022). Apple Profit Margin 2010–2022 | AAPL. Macrotrends | The Long Term Perspective on Markets. Retrieved July 2, 2022, from https://www.macrotrends.net/stocks/charts/AAPL/apple/profit-margins

Walther, L. M. & Skousen, C.J. (2009). Managerial and Cost Accounting. https://library.ku.ac.ke/wp-content/downloads/2011/08/Bookboon/Accounting/managerial-and-cost-accounting.pdf

Note:
This article is written based on University of The People Managerial Accounting (BUS 5110) written assignment by Fristy Tania in July 2022