Uses of Contribution Margin
It can help the people in charge of a company choose between several products that all want to use the same set of manufacturing tools. Take the example of a company that has a pen-making machine that can make both ink pens and ball-point pens. The management has to decide which one to make. If the margin of contribution for an ink pen is bigger than that for a ball pen, the ink pen will be made because it has a better chance of making money. Companies that make a wide range of goods often have to make these kinds of choices. Management has to make sure that resources are put toward the products that will make the most money.