ECONOMICS

Detailed explanation-1: -Contribution margin is the amount by which a product’s selling price exceeds its total variable cost per unit. This difference between the sales price and the per unit variable cost is called the contribution margin because it is the per-unit contribution toward covering the fixed costs.

Detailed explanation-2: -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-3: -Contribution margin per unit formula would be = (Selling price per unit – Variable cost per unit.

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: -Variable costs are the sum of all labor and materials required to produce a unit of your product. Your total variable cost is equal to the variable cost per unit, multiplied by the number of units produced.