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Contribution margin ratio

Contribution margin ratio is contribution margin expressed as a fraction of sales revenue, showing what percentage of each euro of revenue remains after variable costs to cover fixed costs and profit.

Also known asCM ratio

ByHoang TruongUpdated

FrameworkCost-volume-profit (CVP) analysis

See it move

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A dial gauge pointing to 36% shows the contribution margin ratio for a product priced at €50 with a variable cost of €32. The margin of €18 divided by the selling price of €50 equals 36%, meaning every euro of sales leaves €0.36 to cover fixed costs and, once those are fully recovered, to generate profit.

Where it fits
SubjectCost AccountingCoreTopicCost-Volume-Profit AnalysisCore

The formula

LaTeX
CMR=CMpCMR = \frac{CM}{p}

Variables

contribution margin per unit (€ per unit)
selling price per unit (€ per unit)

Expressed as a decimal or percentage; shows what proportion of each euro of revenue remains after all variable costs.

LaTeX
BEPrevenue=FCCMR\text{BEP}_{\text{revenue}} = \frac{FC}{CMR}

Variables

total fixed costs (€)
contribution margin ratio (decimal)

Check yourself

PracticeCORE

A firm sells a single product at €80 per unit with variable costs of €48 per unit and total fixed costs of €96,000. What is the contribution margin ratio, and what is the break-even revenue?

Select an answer to check your understanding.