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The selling price per unit less the variable cost per unit is the contribution margin. The metric, also known as dollar contribution per unit, shows how a specific product affects the company's overall earnings.
The selling price per unit less the variable cost per unit is the contribution margin (CM), also known as dollar contribution per unit. The amount of sales revenue known as "Contribution" is the portion that is utilized to cover fixed costs as opposed to variable costs. One of the fundamental principles of break-even analysis is this idea. Sales are divided from contributions and variable costs. Linear volumetric costs are used in the Cost-Volume-Profit Analysis model. The contribution margin, or marginal profit per unit sold, is a helpful indication for carrying out various computations and can be used as a barometer of operating leverage in cost-volume-profit analysis, a sort of management accounting. In the labor-intensive service sector, low contribution margins are typical, whereas high contribution margins are evident in the industrial sector.
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