Contribution Margin (CM) and Contribution Margin (CM) ratio

Contribution Margin (CM):

The unit Contribution Margin (CM) is the quantity of unit sales price (P) minus the quantity of unit variable cost (V) is of interest in its own right, it is the marginal profit per unit, or alternatively the portion of each sale that contributes to Fixed Costs. The break-even point can be more simply computed as the point where Total Contribution=Total Fixed Cost.

Contribution Margin (CM) Ratio:

The margin contribution can also be expressed as a percentage. The contribution margin ratio, which is sometimes called the profit-volume ratio, indicates the percentage of each sales dollar available to cover fixed costs and to provide operating revenue. The contribution margin ratio is Contribution Margin (CM) Ratio = Sales – Variable Costs/Sales.