Contribution margin
Contribution margin is selling price minus variable cost per unit — the amount each unit contributes toward covering fixed costs and, once those are covered, generating profit.
Also known asCM
FrameworkCost-volume-profit (CVP) analysis
See it move
A segmented bar shows the selling price of €50 divided into two parts: variable cost of €32 and contribution margin of €18. The contribution margin of €18 per unit first covers fixed costs of €72,000, requiring 4,000 units to break even; every unit sold beyond that threshold earns €18 in operating profit.
The formula
Variables
- selling price per unit (€ per unit)
- variable cost per unit (€ per unit)
The amount each unit contributes toward covering total fixed costs and, once those are recovered, generating profit.
Variables
- contribution margin per unit (€ per unit)
- units sold (units)
Check yourself
A product sells for €45. Its direct materials cost €12, direct labour costs €8, variable manufacturing overhead costs €5, and the allocated share of fixed manufacturing overhead is €6. What is the contribution margin per unit?