← Every exhibit
Why is gross margin structurally distinct from contribution margin?
| Dimension | Gross margin (GAAP / IFRS) | Contribution margin (Managerial accounting) |
|---|---|---|
| Primary objective | External statutory reporting and investor comparability | Internal resource allocation and marginal pricing decisions |
| Cost categorization | Functional classification (production vs operating expenses) | Behavioral classification (variable vs fixed costs) |
| Fixed overhead treatment | Absorbed into inventory and cost of goods sold (COGS) | Excluded from marginal calculation; treated as period costs |
| Variable operating costs | Excluded from COGS; reported below the line in SG&A | Deducted directly from revenue (e.g., shipping, billing fees) |
| Responsiveness to volume | Distorted by inventory build-up and absorption swings | Directly proportional to unit delivery volume |
| Decision relevance | Evaluates statutory product profitability | Evaluates incremental pricing, order acceptance, and break-even |
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Reference & Evidence
Source: Table from this essay. Sources and interpretation are given in the article.