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: -The Contribution margin per unit is the selling price of one unit of goods minus the variable costs of making that unit. The contribution margin per unit is the amount of money each sale contributes towards paying fixed costs. Once the fixed costs are paid, it will indicate how much profit is earned per unit sold.

Detailed explanation-3: -The variable cost per unit is the amount of labor, materials, and other resources required to produce your product. For example, if your company sells sets of kitchen knives for $300 but each set requires $200 to create, test, package, and market, your variable cost per unit is $200.

Detailed explanation-4: -Thus, the contribution margin per unit is the difference between the selling price per unit and the variable cost per unit. This amount is used for covering the fixed costs of the company, before determining the net income or loss generated by the firm.

Detailed explanation-5: -Contribution per unit refers to the difference between the sale price of a product and all the variable costs incurred for it. Since fixed costs do not contribute to the cost of a product, this information is crucial in several areas. One of these includes deciding the price of a single product.