Question

In 250 words explain What is contribution margin per unit? What is contribution margin ratio?

Answer 1

Contribution margin per unit .

The term contribution is moslty used in marginal costing.The contribution margin can be stated on a gross or per-unit basis. It represents the incremental money generated for each product/unit sold after deducting the variable portion of the firm's costs. The contribution margin is computed as the selling price per unit, minus the variable cost per unit.

Contribution per unit = sales price per unit - variable cost per unit.

Contribution margin ration.

= (contributin per unit or contribution )/(sales per unit or sales )*100

The contribution margin ratio is the percentage of sales revenues, service revenues, or selling price remaining after subtracting all of the variable costs and variable expenses.Expressed another way, the contribution margin ratio is the percentage of revenues that is available to cover a company's fixed costs, fixed expenses, and profit

Note that the contribution margin ratio is not the same as the gross margin ratio or gross profit percentage. Further, the contribution margin ratio cannot be computed from the amounts appearing on a company's external income statement.