Question

the sales revenue for 1 unit is $250, the variable cost is $150 and the fixed expense is $75. Four hundred units sold, what is the contribution margin for the sale of 1 unit?

Answer 1

Definition

The contribution margin (CM) is the difference between the selling price of a unit and variable cost per unit or the difference between a firm’s revenue and its total variable costs. In other words, it’s a proportion of revenue available to cover fixed costs of a firm.

Formula

The contribution margin can be expressed in the following ways: per unit, in total, and as a ratio.

The per unit formula can be represented as follows:

CM _{Per Unit} = P - VC

where P is the selling price of a unit, and VC is the variable cost per unit.

In the given problem

Selling price = 250

Variable cost = 150

Contribution margin = 250 - 150

= 100 per unit