What is the primary purpose of the variable expenses in determining contribution margin?

The primary purpose of variable expenses in determining contribution margin is indeed to identify the profitability of sales. Contribution margin represents the revenue remaining after subtracting variable costs associated with producing and selling products. By focusing on variable expenses, a business can understand how much money is available to cover fixed costs and contribute to profits.

This focus allows organizations to see the effect of sales volume on profitability – the higher the sales, the more variable expenses are covered, and the greater the contribution to profit. Understanding this aspect is crucial for pricing decisions and managing operational efficiency. Thus, analyzing the contribution margin helps in assessing how well products are performing financially, guiding strategic decisions around which products to focus on or potentially phase out.

The other options, while relevant in a broader financial context, do not align as precisely with the role of variable expenses in relation to contribution margin. For instance, measuring fixed costs is critical for overall financial management but does not directly pertain to variable expenses. Assessing total revenue could involve fixed and variable costs but doesn't specifically relate to variable expenses' role in analyzing profitability. Similarly, calculating the cost of goods sold involves both fixed and variable costs, but the focus here is not solely on how variable expenses contribute to understanding profitability as part of the contribution margin calculation.