Contribution Margin Calculator

The contribution margin calculator measures the contribution margin of a product or service, empowering you to gauge your business’s efficiency and maximize profits.

With it, you also get the contributions ratio which helps in determining how you can manufacture products by spending the minimum amount without disturbing the quality standards.

What Is Contribution Margin Ratio?

This is a ratio that reflects the efficiency of a business in terms of covering the variable costs. It is expressed in the form of a percentage.

A higher contribution margin ratio represents that a larger sales revenue is available.

Contribution Margin Formula:

The formula that is used to calculate the contribution is outlined below:

$CM=\ (SP_{unit}\times U)−\ (\ VC_{unit}\times\ U)$

The formula that is used to calculate the contribution margin ratio is as:

$CM_{ratio}=\dfrac{CM} {(SP_{unit}\times U)}$

Where

CM represents the contribution margin
SP is the price of one selling unit
N is the number of units sold to the client
VC is the representative of the variable costs per unit

How To Calculate Contribution Margin?

Go through the following steps to calculate the contribution margin:

First of all, determine the total revenue
Calculate the Cost of goods sold
Determine the number of units sold and the fixed costs
Put these values in the unit contribution margin formula to calculate contribution margin and deduct all costs from sales revenue, as we have done in the following example

Example:

Suppose you have created 100,000 units of a product whose

Selling price per unit = $ 20
Variable Costs per unit = $10
Fixed Cost = $8

How to find unit contribution margin, contribution margin ratio, and the contribution profit profit generated from the sale.

Solution:

Put the values in the contribution margin unit formula

$CM=\ (SP_{unit}\times U)−\ (\ VC_{unit}\times\ U)$

$CM=\ (20\times 100,000)−\ (\ 10\times\ 100,000)$

CM = $1,000,0000

Put the value of CM in the contribution margin percentage formula

$CM_{ratio}=\dfrac{1,000,000} {(20\times 100,000)}$

$CM_{ratio}= 0.5\times100$

$CM_{ratio}= 50\% $

How this Calculator Work?

The calculator measures the difference between the sales price and the variable costs of the product in seconds. Let’s see how it works!

What Do You Need To Enter?

Selling Price Per Unit: The amount at which each unit of a product is sold
Variable Cost Per Unit: The cost of producing one unit of product
Number of Units: It’s the total quantity of the product
Fixed Costs: This is the expense that occurs while producing the product

This Is What You Will Get!

Contribution Margin: The portion of sales revenue that is generated by the sold products
Contribution Margin Ratio: The percentage that helps to understand how much each dollar is contributing to covering the fixed cost
Profit Generated: The amount that remains behind after subtracting all the expenses

References:

investopedia.com: contribution margin.