ECONOMICS

Detailed explanation-1: -The contribution margin is computed as the selling price per unit, minus the variable cost per unit. Also known as dollar contribution per unit, the measure indicates how a particular product contributes to the overall profit of the company.

Detailed explanation-2: -Contribution margin per unit formula would be = (Selling price per unit – Variable cost per unit.

Detailed explanation-3: -Total profit = contribution less fixed costs In the above example we calculated contribution per unit by subtracting variable cost per unit from selling price per unit.

Detailed explanation-4: -To calculate the break-even point in units use the formula: Break-Even point (units) = Fixed Costs ÷ (Sales price per unit – Variable costs per unit) or in sales dollars using the formula: Break-Even point (sales dollars) = Fixed Costs ÷ Contribution Margin. Here’s What We’ll Cover: What Is the Break-Even Point?

Detailed explanation-5: -The margin of safety is the difference between the amount of expected profitability and the break-even point. The margin of safety formula is equal to current sales minus the breakeven point, divided by current sales.