Managers frequently confuse gross margin and contribution margin because they are often identical in the case of merchandising companies because cost of goods sold equals the variable cost of goods purchased.

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Gross margin and contribution margin are similar in that they both measure profitability, but they are calculated differently. Gross margin is calculated by subtracting the cost of goods sold from the sales revenue. Contribution margin, on the other hand, is calculated by subtracting the variable costs from the sales revenue. For merchandising companies, the cost of goods sold is the same as the variable cost of goods purchased, which can lead to confusion between the two margins.

Managers Frequently Confuse Gross Margin and Contribution Margin Because They