Question

What are the unit contribution margin and the contribution margin ratio? What do these measures reveal about a company's cost structure?

Answer 1

Contribution Margin per unit is the selling price per unit minus variable cost per unit. In other words, it reveals the amount by which selling price per unit exceeds variable costs per unit.

Contibution margin ratio is the ratio of contribution margin and net sales. It reveals the ratio of net sales that exceeds the Variable cost.
It is calculated by:
Contribution Margin Ration=(Contibution Margin per unit/Net sales)

For example- the selling price of Praduct A is $10 per unit and variable costs is $4 per unit
Contribution Margin per unit=10-4=$6 per unit.
Contribution margin ratio=6/10=0.6 or 60%
Contibution margin ratio can be expressed either in ratio or in terms of percentage.