The contribution margin demonstrates how much money is left over from sales after variable and fixed costs are covered. This amount can be used for increased operating expenses.

The contribution margin is computed as the difference between the sale price of a product and the variable costs associated with its production and sales process.

\text{Contribution Margin}=\text{Sales Revenue }-\text{ Variable Costs}

Annabelle, the managerial accountant at For Rover's Sake, calculates the contribution margin by subtracting variable costs from sales.

For example, For Rover's Sake has $827,000 in sales. Its variable costs total $431,000. This means the contribution margin is:

$827,000 - $431,000

or

$396,000.

Annabelle then subtracts the fixed costs, which total $198,600 to get $197,400. This amount can be reinvested into For Rover's Sake for increased operating expenses. There's a $150,000 robotics system that Annabelle suggests the company can purchase to increase productivity.

Whats the impact of the contribution margin. Can Annabelle's company purchase the robotics system?