What is Contribution margin in business

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What is Contribution margin in business Powered By Docstoc
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Contribution margin per unit is defined as the difference between unit selling price and
variable cost per unit which are respectively the revenue and the cost associated with a
unit change in the volume of output.

Mdcu = P - CVU

The sum of the unit contribution margins related to a period gives the contribution
margin for the period. When the contribution margin for the period is equal to the total
fixed costs for the period it reaches the breakeven point.

In the event that the contribution margin is greater than the fixed costs it generates
profit. The concept of contribution margin can be used for a reclassification of the
income statement information to assess the effect of income changes in the volume of
sales or turnover. This reclassification is obtained by deducting from revenue the
variable costs.

Revenue - variable costs = gross contribution margin of the first level. Revenue -
variable costs-fixed costs = contribution margin of a second level. Reclassification in
that if we subtract from the gross margin of direct fixed costs, we obtain the contribution
margin of a second level, also called net contribution margin, also referred to as gross
margin contribution seeds (MSLC)

Mathematical definition

DB = E (x) = K_v db \ cdot {\ rm lot}

with

E (x): Revenue for the period

Kv: variable costs in the period

db = p - kv

with

db: Contribution margin per unit (including pieces rarely cover margin or contribution
margin)

p: Unit price (or revenue per unit e)

kv: variable costs

Relative contribution
    * Plan benefit ratio (in individual trade deficit)
    * Performance success rate
    * Gross profit per unit of bottleneck load

The relative contribution margin (gross profit rate also) refers to the consumption of one
factor that is required to generate the gross margin:

RDB = {{\ rm contribution margin} \ over {\ rm}} Production Consumption factor

The contribution margin is therefore the amount available to cover the fixed costs. The
contribution margin can be related both to the total amount of a product, as well as a
unit (db) (lot size).

The contribution margin is the calculated value of marginal costing. Within the
multi-level break-even analysis (fixed cost accounting) they are differentiated,
depending on the observed corporate level (ie which fixed business costs are all added
to) various contribution levels.

				
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posted:1/16/2013
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