contribution margin is the difference between sales revenue and variable cost. it allows a company to determine the profitability of individual products by measuring how sales affect profits. in its ratio form, it is calculated as contribution margin divided by sales revenue. while revenue from a company's product is how much money the company makes from selling that item, a product's variable costs include those expenses that vary depending on the company's production volume. a business owner, ?, might use contribution margin figures to decide which product's cost he should reduce or which price he should increase. for example, if a pair of jeans sells for $100 and its variable costs are $65, its contribution margin is $35 or 35%. this means that for each dollar of sales, profit increases by ¢35. ? wants to see a contribution margin ratio of 50%. he determines he can achieve this either by reducing variable costs to $50, by increasing the price of jeans to $130 or through some combination of the two. another option is to quit selling jeans entirely and focus on other products such as button-down shirts which already have a contribution margin of at least 50%. ? might also want to calculate the contribution margin for all of his products ?. if total variable costs are $750,000 and total sales are $1,500,000, the total contribution margin in ratio form will be 50%. the business could compare the contribution margins of individual products against the company's total contribution margin to determine which products to sell more of and/or which to sell less of. if ? have a contribution margin of 60% and it is possible to sell more of them at the same price, total contribution margin will rise.
- contribution margin・・・貢献利益