In the context of financial forecasting, how do fixed costs impact the calculation of contribution margin when evaluating business decisions?

Fixed costs are the expenses that do not change regardless of how much a business produces or sells, like rent or salaries. When calculating the contribution margin, which is the amount left after subtracting variable costs from sales revenue, fixed costs are not included in that calculation. This is important because the contribution margin helps businesses understand how much money is available to cover fixed costs and contribute to profits. For example, if a company sells a product for $100 and has variable costs of $60, the contribution margin is $40. This means that every sale contributes $40 toward covering fixed costs and making a profit, showing how crucial it is to manage both fixed costs and contribution margin when making business decisions.