Question

A company with monthly revenue of $120,000, variable costs of $50,000, and fixed costs of $40,000 has a contribution margin of?

Answer 1

Company has a contribution margin of $70,000.

Contribution margin = Revenue – Variable Costs

                                  = $120,000- $ 50,000

                                  = $70,000

The portion of a product's sales revenue that isn't used to cover variable costs and instead goes toward covering the company's fixed costs is known as the contribution margin. Major component of break-even analysis is the idea of contribution margin.

Labor-intensive company with few fixed expenses tend to have low contribution margins, whereas capital-intensive, industrial businesses have more fixed costs and, thus, higher contribution margin. The difference between a product's sale price and the variable costs related to its manufacture and sale is calculated as the contribution margin.

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