Contribution margin ratio

Some managers prefer to use a contribution margin ratio in CVP analysis.

Contribution margin ratio refers to the percentage of each dollar of sales that is available to apply to fixed costs and contribute to net income; calculated as contribution margin per unit divided by unit selling price.

Contribution Margin per Unit  ÷   Unit Selling Price  = Contribution margin


Share it:  Cite

More from this Section

  • Participative budgeting
    Participative budgeting is a budgetary approach that starts with input from lower-level ...
  • Factor
    A factor is a finance company or bank that buys receivables from businesses and then collects ...
  • Temporary & Permanent accounts
    Temporary accounts relate only to a given accounting period. They include all income statement ...
  • Credit memorandum
    Sometimes a depositor asks the bank to collect its notes receivable. In such a case, the ...
  • Return on investment (ROI)
    The primary basis for evaluating the performance of a manager of an investment center ...