Unit Contribution Margin - Essay Example

Comments (0) Cite this document
What is unit contribution margin? Unit contribution margin is the dollar quantity that a product's vending price exceeds its total variable cost. Unit contribution margin= Sales Price Per Unit …
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER98.4% of users find it useful
Unit Contribution Margin
Read TextPreview

Extract of sample "Unit Contribution Margin"

What is unit contribution margin? Unit contribution margin is the dollar quantity that a products vending price exceeds its total variable cost.
Unit contribution margin= Sales Price Per Unit – Total Variables Cost Per Unit
How is it used in computing the unit breakeven point?
At break-even point, the Cost-Volume-Profit analysis equation is reduced to:
PX = xv + FC
Where p is the price per unit, x is the number of units, v is the variable cost per unit, and total fixed cost is FC.
Solving the equation for Break-even sales units
Break-even Sales Units = x = FC ÷ ( p − v )
Since unit contribution margin (Unit CM) is equal to unit sale price (p) less unit variable cost (v) thus,
Unit CM = p − v
Break-even Sales Units = x = FC ÷ Unit CM
Break-even Sales Dollars = Price per Unit × Break-even Sales Units
; or

What is contribution margin ratio and when is it most useful?
The contribution margin ratio is the measure of sales, facility returns or selling price that residues after all variable costs and variable costs have been enclosed.
Contribution margin ratio= (Sales-variables) / sales
Contribution margin ratio plays a key role in;
Determining the profits that will rise from several sales levels
Assessing the influence on earnings of changes in sales. In particular, it can be used to estimation the decline in profits if sales drop, and so is an standard tool in the making of budgets.
How is the breakeven equation modified to take into account the sales required to earn a target profit?
Breakeven equation is found from the profit equation by substituting the profit side by zero.

SPx – VCx – FC = 0
To derive the target income from the break even equivalence we replace the zero value of the particular side with profit boundary and many board gain to fixed cost;
SPx - VCx - TFC = Profit
Suppose two companies are the same except that company A has more variable costs than fixed costs. Company B has more fixed costs than variable costs. When sales increase, which company will realize the greatest increase in profits?
Company A will realize more profits compared to B.
Warren, C. S., Reeve, J. M., & Duchac, J. (2009). Financial and managerial accounting. Mason, Ohio: South-Western Cengage Learning.
Crosson, S. V., & Needles, B. E. (2008). Managerial accounting. Boston, MA: Houghton Mifflin Co.
Warren, C. S., Reeve, J. M., & Duchac, J. E. (2009). Accounting. Mason, OH: South-Western Cengage Learning. Read More
Cite this document
  • APA
  • MLA
(“Unit Contribution Margin Essay Example | Topics and Well Written Essays - 500 words”, n.d.)
Retrieved from
(Unit Contribution Margin Essay Example | Topics and Well Written Essays - 500 Words)
“Unit Contribution Margin Essay Example | Topics and Well Written Essays - 500 Words”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Unit Contribution Margin

Contribution Margin and Breakeven Analysis paper

...?The concept of contribution margin is particularly important when a firm is considering whether to produce one product or another. In this case, contribution margin refers to the difference between the sales from a product and the variable cost per unit, meaning the amount of profit from a product per unit sold (Seal, Garrison and Noreen 200). The contribution margin helps to determine whether a firm or company will achieve the profits sought after the fixed costs have been deducted. Therefore, the concept of break even is also determined by the concept of contribution...
5 Pages(1250 words)Term Paper

Statistic Assignment on Variables, Programming Models and Contribution Per Unit

...?Task 1. Contribution per unit Contribution per unit is calculated in order to form an objective function. The variable cost per hour for each testdevice is multiplied by the number of hours required for testing each peripheral device on a particular test device. Firstly, the total labor cost per unit for each peripheral device can be calculated by adding up the variable labor cost per unit for each test device. After this, total cost is calculated by adding the variable labor cost and material cost. The difference of selling price per unit and total cost per unit gives contribution per...
6 Pages(1500 words)Essay

Ratios/Profit Margin

...? Ratios and Profit Margin Insert of the DISCUSSION RATIOS Firm’s performance can be predicted by use of financial ratios. When calculating financial ratios, information is generated from company’s financial statements. Among these statements include balance sheet, income statements and cash flow. Practically, financial ratios are calculated to help in analyzing trends, as well, as to conduct a comparison of the company’s financial performance with other companies in the same industry (Lewellen, 2004). In special cases, ratio analysis is done to help in predicting possible future bankruptcy of the company. The main financial ratios used in most cases include: Liquidity ratio, financial leverage ratio, asset turnover...
3 Pages(750 words)Assignment


...? Kau Hang Hui WRTG 3012 Heather 1st December, Food waste recycles in United s Introduction Wastefood is a global problem that has not fully been mitigated over long period of time. Averagely a third of the world produced food goes into waste. Method such as recycling can be used to deal with such situation so that waste is made useful to the society. In low income countries (underdeveloped countries) most food go into waste at the production level while in developed countries most waste come after such stages like processing and production. Going by the research carried out in Arizona in 2004, 14-15% of edible food goes into waste. Unfortunately people go to an extent of purchasing food they really doesn’t need and a...
9 Pages(2250 words)Essay

Contribution Margin And Breakeven Analysis

...enjoyed higher contribution margin than Real Mint i.e. 0.94 while Real Mint had the contribution margin of 0.64. The right decision should have been that the production of Lemon Crme should continue with the same quantity and its production should not be cut off. The bulk order should be accepted by reducing the current production of Real Mint. There might be several circumstances where she should not accept the bulk order: 1. If the price offered for the Real Mint is low causing decline in the operating profit OR the price per unit offered can not offset the variable and fixed cost incurred on the production. In the current case, the price per...
2 Pages(500 words)Essay

C-V-P equation.Contribution margin

.... The detailed version of the above equation can be expressed as: Price x Units (to be) sold = Unit Variable cost x units + Fixed Cost + Profits 10. What is the contribution margin, and why is it important for managers to know the contribution margins of their products Contribution margin is the remaining revenue amount after the deduction of variable costs. This provides the gross profitability without the deduction of fixed expenses. Contribution margin = Revenue - Variable costs. It is important for managers to decide if their materials...
5 Pages(1250 words)Essay

A Revised Income Statement, The Contribution Margin Approach

...1) Income ment under marginal costing method Units Amount (in Sales 345,000 10,005,000 Cost of Sales Opening Inventory Direct Material - - Direct Labour - - - Production Direct Material 400,000 (1,400,000) Direct Labour 400,000 (560,000) (1,960,000) Closing Direct Material 55,000 192,500 Direct Labour 55,000 77,000 269,500 Total Cost of Goods Sold (1,690,500) Variable Selling and operating cost per unit 345,000 (414,000) Contribution Margin 7,900,500 Total Fixed Manufacturing Overhead (1,600,000) Total fixed selling and administrative expenses (1,200,000) Net Profit 5,100,500 Income statement under absorption costing method Units Amount...
3 Pages(750 words)Research Paper

Margin Call

...BSL 212 ‑ INTRODUCTION TO BUSINESS LAW FALL SEMESTER 536 words Analytical Paper Ethics - “Margin Call” One example of an ethically ambiguous activity is when the senior executives of the firm realize that the firm is about to suffer a huge loss. In response to this, the division head Jared decides that the company should sell all of its toxic assets before the market realizes that the company finances are about to take a nosedive. The CEO of the company, John, also backs this plan because it offers a quick way out for a company that is facing financial ruin. However, the investment floor head, Sam, argues that doing this will destroy any credibility that the company has left. Once customers realize what the company is...
2 Pages(500 words)Essay

The Margin Call Movie

...Margin Call Brief of the parties involved, what happened, and why it was ethically questionable The parties involved deeply in this movie are the junior employees and senior executive officials of the investment bank. They are in a crisis meeting trying to manage the risk of the firm going down through profit loss and losing its traders and even ruining its future reputation. Even though at the beginning of the meeting some of the senior executives (Rogers, Robertson, Tuld and Cohen) make the rest believe that the issue is new, it eventually comes to be known as the movie proceeds that they knew of the crisis beforehand but did nothing to avert it. This move is one of the ethically questionable issues evident in the...
2 Pages(500 words)Essay

Margin Call: MBS Analyses

...The company in the film ‘Margin Call’ had direct knowledge that their investments would be rendered worthless and that the company will go down with the lost being greater than its entire market capitalization. Through the work of Eric Dale as finished by his protégé Peter Sullivan, the company gained firsthand viable information that they will soon be in trouble. Instead of finding another way out of their conundrum, John Tuld decided to take the easier way out and instigated the MBS team to sell as much of their stocks as they can even at a lost to unknowing buyers who will later find out they have been deceived. The fire sale that occurred prompted the buyers to grab the chance of what seemed to be a good opportunity...
2 Pages(500 words)Movie Review
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Unit Contribution Margin for FREE!

Contact Us