Contribution Margin
A Contribution Margin is a microeconomic measure based on a selling price per unit minus the variable cost per unit.
- AKA: Dollar Contribution per Unit.
- See: Return on Marketing Investment, Operating Leverage, Variable Cost, Break-Even (Economics), Cost-Volume-Profit Analysis.
References
2015
- (Wikipedia, 2015) ⇒ http://en.wikipedia.org/wiki/contribution_margin Retrieved:2015-6-22.
- Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. This concept is one of the key building blocks of break-even analysis.[1]
In cost-volume-profit analysis, a form of management accounting, contribution margin — the marginal profit per unit sale — is a useful quantity in carrying out various calculations, and can be used as a measure of operating leverage. Typically, low contribution margins are prevalent in the labor-intensive tertiary sector while high contribution margins are prevalent in the capital-intensive industrial sector.
- Contribution margin, or dollar contribution per unit, is the selling price per unit minus the variable cost per unit. “Contribution” represents the portion of sales revenue that is not consumed by variable costs and so contributes to the coverage of fixed costs. This concept is one of the key building blocks of break-even analysis.[1]
- ↑ Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance. Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0-13-705829-2. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language: Marketing Activities and Metrics Project.
- http://www.investopedia.com/terms/c/contributionmargin.asp
- A cost accounting concept that allows a company to determine the profitability of individual products.
It is calculated as follows:
(Product Revenue - Product Variable Costs) / Product RevenueThe phrase "contribution margin" can also refer to a per unit measure of a product's gross operating margin, calculated simply as the product's price minus its total variable costs.
- A cost accounting concept that allows a company to determine the profitability of individual products.