The contribution margin is first used to cover <u>fixed</u> expenses. Once the break-even point has been reached, the contribution margin becomes <u>profit.</u>
<h3><u>What Is Contribution Margin?</u></h3>
The contribution margin may be expressed as a gross or per-unit figure. After the variable element of the company's costs are subtracted, it indicates the additional revenue made for each product or unit sold.
The selling price per unit less the variable cost per unit is used to calculate the contribution margin. The measurement, also known as dollar contribution per unit, shows how a specific product affects the company's overall profit.
<u>How is Contribution Margin Calculated?</u>
The difference between a product's sale price and the variable costs related to its manufacturing and selling process is calculated as the contribution margin.
Revenue minus Variable Costs equal contribution margin. The contribution margin ratio is computed as (Revenue - Variable Costs) / Revenue.
<u>What Constitutes a Good Contribution Margin?</u>
The closer the contribution margin is to 100%, the better, as 100% is the ideal contribution margin. The greater the number, the better a corporation is at covering its operating expenses with cash on hand.
Learn more about the contribution margin with the help of the given link:
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<u>Correct question:</u>
Contribution margin is first used to cover _______ expenses. Once the break-even point has been reached, contribution margin becomes __________. (one word per blank)
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