Contribution margin is the difference between revenue and variable cost.
Thank you for reading this post, don't forget to subscribe!- It is a key measure used to assess profitability and operational efficiency.
- The higher contribution margin is the indicator of sound profitability position.
- Useful for break-even analysis and decision-making.
The ratio between the Contribution Margin and sales is called Contribution Margin Ratio.
- It is also called as profit volume ratio.
- Higher contribution margin ratio results in higher profit and vice versa.
It can increased by:
- Increasing the selling price per unit.
- Decreasing the variable cost per unit.