Contribution Margin or CM is used to analyse, how much contribution is earned, when variable costs are deducted from sales revenue of an entity. Contribution margin is used in decision making scenarios. Contribution margin can be calculated per unit or in revenue terms. It is calculated as follows: Per Unit: CM Per Unit = Sales Price (Per Unit) - Variable Costs (Per Unit) Revenue Terms: CM = Sales - Direct Materials - Direct Labor - Variable Overheads Presentation of Contribution Margin is as follows: Sales xx Less: Variable costs - Direct materials (xx) - Direct labor (xx) - Variable overheads (xx) - Total variable costs (xx) Contribution margin xx CM Ratio: Contribution margin ratio is calculated as follws: CM Ratio(%age) = CM / Sales * 100 Example 1: Sales P
Accounting By Usman Zuberi
Covering Financial Accounting, Cost and Management Accounting For Business and Finance Students