Contribution Margin

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 Revenue

The 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.

Consider a situation in which a business manager determines that a particular product has a 35% contribution margin, which is below that of other products in the company's product line. This figure can then be used to determine whether variable costs for that product can be reduced, or if the price of the end product could be increased.

If these options are unattractive, the manager may decide to drop the unprofitable product in order to produce an alternate product with a higher contribution margin.

Investment dictionary. . 2012.

Look at other dictionaries:

  • Contribution margin — Decomposing Sales as Contribution plus Variable Costs. In the *****Cost Volume Profit Analysis model, costs are linear in volume. In cost volume profit analysis, a form of management accounting, contribution margin is the marginal profit per unit …   Wikipedia

  • contribution margin — Fin a way of showing how much individual products or services contribute to net profit. EXAMPLE Its calculation is straightforward: Sales price – variable cost = contribution margin Or, for providers of services: Total revenue – total variable… …   The ultimate business dictionary

  • contribution margin — contribution …   Accounting dictionary

  • Contribution margin — The difference between variable revenue and variable cost. The New York Times Financial Glossary …   Financial and business terms

  • contribution margin — The difference between variable revenue and variable cost. Bloomberg Financial Dictionary …   Financial and business terms

  • Contribution Margin — ⇡ Deckungsbeitrag …   Lexikon der Economics

  • contribution margin — /ˌkɒntrɪ bju:ʃ(ə)n ˌmɑ:dʒɪn/ noun the difference between the revenue generated by a product and its total variable costs …   Marketing dictionary in english

  • Contribution margin-based pricing — maximizes the profit derived from an individual product, based on the difference between the product s price and variable costs (the product s contribution margin per unit), and on one’s assumptions regarding the relationship between the… …   Wikipedia

  • contribution margin ratio — contribution to sales ratio; = production–volume ratio; = profit–volume ratio The ratio of the contribution per product to the sales value, often expressed as a percentage. It is a way of ranking a range of products in terms of their relative… …   Accounting dictionary

  • Маржинальная прибыль (CONTRIBUTION MARGIN, MARGINAL CONTRIBUTION)  — Разность между доходом от реализации и переменными затратами. Для достижения точки безубыточности маржинальная прибыль должна покрыть постоянные затраты. См. также Доля маржинальной прибыли (Contribution Margin Ratio); Маржинальная прибыль на… …   Словарь терминов по управленческому учету

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