How to get operating income after calculating contribution margin
Contribution marginFixed costs:Fixed manufacturing costsFixed operating costsTotal fixed costsOperating income
To get the operating income after calculating the contribution margin, follow these steps:
1. Determine the total contribution margin: Calculate the difference between the total revenue and the total variable costs, which is the contribution margin.
2. Deduct the fixed costs: Subtract the total fixed costs from the total contribution margin to obtain the operating income.
The operating income is the total profit of a company after all the costs have been deducted, including both variable and fixed costs. By calculating the contribution margin, you can see the profit generated by each product or service after deducting only the variable costs. However, to obtain the overall profitability of a business, you must factor in the fixed costs as well. Deducting the total fixed costs from the contribution margin gives you the operating income.
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