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Friday, June 3, 2011

Contribution Margin Ratio Example

Definition: Contribution Margin Ratio (CM Ratio) is the percentage of contribution over total revenues.

Formula:
Contribution Margin Ratio = (Price - Variable cost per unit) / price
OR = Total contribution margin / Total revenue
(Note: Contribution margin = sales price - variable costs)

Example 1:
If the price of a product is $300 and the unit variable cost is $250, then the unit contribution

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