Contribution Margin Analysis: No Longer Relevant/Strategic Cost Management: The New Paradigm.

Abstract The article focuses on a panel presented at the 1989 Annual Meeting of the American Accounting Association where the topic of discussion were "Contribution Margin Analysis: No Longer Relevant," and "Strategic Cost Management: The New Paradigm." In this discussion, panel moderator William L. Farrara will demonstrate how the activity-based accounting approach can richly extend the domain of traditional contribution margin analysis and cost variability. The traditional approach splits operating expenses into two cost pools. One cost pool, the fixed expenses, includes those expenses that do not change with respect to short-run changes in production levels; the other pool includes those expenses expected to vary with short-run changes in production levels. Activity-based analysis computes product-related expenses at three levels: unit, batch, and product sustaining. In addition, individual products do not drive some expenses. They can be driven by product lines, by plants, by customers, or by distribution channels.