Contribution analysis is a type of financial analyses used to measure the impact of direct and variable costs affect the net income of a company. Common direct and variable costs include the cost of goods sold, shipping, direct labor costs, or any costs incurred during the manufacturing process. The formula for calculating the contribution margin is as follows:
Contribution Margin = (Total Revenue - Variable Costs) / # of Units Sold
Contribution analysis is especially useful for comparing the profitability of multiple product lines, business units, or departments.