Question

in regards of Contribution margin ratio, How could profitability be improved? How is it decided for a branch to be discontinued?

Answer 1

When a business wants to calculate how much revenue it earns from the sale of its products, it calculates contribution margin ratio. The contribution margin ratio means a company how much the contribution margin of its products changes in response to an increase or decrease in sales volume.

Contribution Margin Ratio Equation
The contribution margin ratio is the contribution margin divided by sales, expressed in a percentage.

Contribution Margin Increase- The contribution margin ratio increases when sales increase.
If a company finds that its contribution margin is too low and it wants to generate higher profits, it needs to increase its contribution margin ratio. The main ways a company can work toward achieving this goal is to increase the final sales price of its products, increase sales and decrease its variable cost or a combination of all three.