How to Use Contribution Margin Calculator
Enter the Price.
Enter the total fixed cost.
Contribution Margin Calculator
How to calculate Contribution margin
Contribution Margin Formula: Price - Variables Cost
Let's say we have a company that sells a new mobile phone, its sales are $500,000 and the variable costs are $300,000. The contribution margin for this is $200,000,
$200,000 is the money left to pay for fixed costs. It is also possible to calculate contribution margin per product, to do this divide the number of products sold by $500,000. The company sold a thousand phones, therefore, the contribution margin per product is 500,000 / 1000 = 50.
Definition: Contribution margin is defined as the selling price of a product or a service minus the variable cost, it helps a company determine the profitability of a product.
Once we have the variable cost we deduct it from the price, variable cost can be many things, it may be materials, overhead, labor anything associated with the output. It all falls under variable cost, we also have a Average Variable cost Calculator which goes over variable costs.
Benifits of using contribution margin
Contribution margin is essentially used to determine how profitable a product is. It makes it easier for companies to make decisions related to products, such as pricing of a product or if a product should be discontinued etc. An example would be the break-even point of sales. If the contribution margin is $1 per product sold and the fixed costs amount's to $500, the company will have to sell 500 products to break even. We also have a Averavge Fixed Cost Calculator
which will go through fixed costs.