This contribution margin ratio template shows you how to calculate the contribution margin, CM percentage, and break-even point.
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The contribution margin ratio (CM ratio) of a business is equal to its revenue less all variable costs divided by its revenue. It represents the marginal benefit of producing one more unit.
The formula for contribution margin ratio is:
CM ratio = (total revenue – cost of goods sold – any other variable expenses) / total revenue
The contribution margin is not necessarily a good indication of economic benefit. Companies may have significant fixed costs that need to be factored in. It can be important to perform a break-even analysis to determine how many units need to be sold to break even.
In order to perform this analysis, calculate the contribution margin per unit, then divide the fixed costs by this number and you will know how many units you have to sell to break even.
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