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Yes, I agree. In CVP analysis, gross margin is a less-useful concept than contribution margin. Because gross margin is the difference between the cost to produce or purchase an item and its selling price. Gross margin is the amount before deducting expenses such as selling, general and administrative and interest. There is a big difference between gross margin and net profit margin.

Contribution margin is defined as revenues minus variable expenses. The contribution margin reveals how much of a companys revenues will be contributing after covering the variable expenses to the companys fixed expenses and net income. The contribution margin is also a key component in computing a companys break-even point.

A company might use budgeted costs rather than actual costs to compute direct labor rates because its difficult to trace direct labor costs when completing work.