To simplify things, imagine a company which sells two products, A, and B, and it has two types of revenues, two types of variable costs, and 1 type of fixed costs.
I can calculate margins by taking revenue A - variable cost A, and revenue B - variable cost B.
This tells me how much I make by selling each product.
However, then I have fixed costs, and I can't really "attribute" them to A and B.
My question is, how do I then decide which product is profitable to sell or not?
How do I "apply" fixed costs to my products?
Do I give use weights? For example, if 50 % of my sales are of product A, then it gets 50% of fixed costs attributed to it, and thus my profits from selling A is
revenue from A - variable costs from A - 50 % of fixed costs = profit from A
My interest lies in deciding whether I should scrap a product, or invest more in a product.