How to calculate contribution margin per unit?

Calculating the Contribution Margin Per Unit is very easy,

As we know, contribution per unit formula is Sale Price per Unit less Variable Cost Per Unit. Take that contribution and divide its with its sale price, we get contribution margin per unit. Remember, when we talk about margin, we mean its percentage.

First think you need to do is to figure out the sales price of product you want to calculate, and then find its variable cost.

Simple right?

Now let go to the example together,

The company sales many type of products. One of those is cup. The sale price of cup is 20$ and its variable cost is 10$.

Calculate contribution margin per unit ?

It is simple,

the contribution is sales price less variable cost or 20-10 = 10

the contribution margin for cup is 10/ 20 or 50%

The thing that you need to remember is when the margin is high, that mean the variable cost is low or the rest of the cost remain in fixed cost. Or the product that we calculating is type of premium product that the price is base on branding or loyalty.

Hope this calculation and explanation help.

Skills

Posted on

September 16, 2016