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Contribution margin is the amount each unit of sales contributes toward covering fixed costs and then generating profit. It equals selling price minus variable cost per unit. The contribution margin ratio expresses this as a percentage of revenue.

Trin-for-trin guide

1. 1Identify selling price per unit and all variable costs per unit (materials, direct labour, commissions)
2. 2Contribution margin per unit = Price − Variable cost per unit
3. 3Contribution margin ratio = CM per unit / Price × 100%
4. 4Total contribution = CM per unit × units sold

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