Accountancy Forum

<font color="blue"><b>Difinition</b></font id="blue">
Sales less varible costs are called contribution margin.
Sales price - Variable costs = Contribution Margin

<font color="blue"><b>Contribution Margin Ratio</b></font id="blue">
Uses
generally there are two types of decisions
a) Shor term Decisons
b) Long Term decisions
Short term decisons relates to the increase or decrease in sales or production.
<b>CM Ratio </b> is used for short term decisions, we make short term decisions on the basisi of CM Ratio or CM per unit. we focus in that product which have high CM Ratio or CM per unit.

Where as long term decision relates to the adding or dropping the product it is totally based on segment margin.
Segment margin I will disscussed later on...........

<b><font color="blue">Calculation of Contributio Margin</font id="blue"></b>

Sales.......................................$50000
less variable costs......................... <u>30000</u>Contributio <b>Contribution Margin...........................20000</b>

Calculation of CM Ratio

contribution margin / sales*100= CM Ratio
$20000/50000*100 = 40%

<font color="purple"><b>Best Regards</b></font id="purple">
<font color="yellow">SHAHID AMIN</font id="yellow">

shahid plz name some factors which affacts CM

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica, san" id="quote">quote<hr height="1" noshade id="quote"><i>Originally posted by tariq aziz</i>
<br />shahid plz name some factors which affacts CM
<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">
great Mr.Tariq....good question
Following are the factors which affacts the contribution margin per unit

1) The Sales Price per unit
2) The variable price per unit