What is critical here?

Have another look at the example. Notice that all the expenses from the PERIOD COSTS label down are either fixed or a percentage of profits. The moment you submit your decisions, everything but Profit Sharing and Taxes is known, and they only occur if you produce a profit. Those known expenses total ($5,200 + $100 + $2,500 = $7,800) or $7.8 million. If your Contribution Margin cannot cover $7.8 million, you are destroying wealth instead of creating it.

In the big picture, you cannot have a decent ROS unless your Net Margin Percentage is good, and you cannot have a good Net Margin Percentage unless your Contribution Margin Percentage is healthy. In Capstone®'s industry, this translates to a 10% ROS, 20% Net Margin, and 30% Contribution Margin.

Finally, consider your detailed Income Statement in your Annual Report. Typically, some of your products are producing healthy margins, while others are slim to negative. Your task is to improve the margins on the poor performers. Are Period Costs too high? Are Sales, and therefore the Contribution Margin, too low?