Definition: What is the Contribution Margin?
Contribution Margin is known as the difference between total sales revenue of the company and variable costs. Sometimes it is used as a ratio.
So Contribution Margin relies on the difference in fixed cost and variable cost of the company. With the increment of the production effort, the fixed cost of the company remains the same while the variable cost increase by an increase in the production level.
Contribution Margin used to calculate the efficiency of the company that, how the company increases the production level with maintaining the low variable cost. This is also considered as a managerial ratio because the company use this ratio and report the margin rarely to the public. We are sharing details about Contribution Margin Formula.
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