Overview

Contribution margin (CM) ratio is a measure of a company's marginal benefit of producing an additional unit of product. The formula for the contribution margin ratio is:

CM Ratio = (Total Revenue - Variable Costs) / Total Revenue

The contribution margin ratio can be further utilized in a breakeven analysis to figure out the number of extra units that need to be sold and the price at which it should be sold for a company to break even. As an example, one can use the following formula to determine the number of units required to be sold to break even: Breakeven (Units) = Fixed Costs / Contribution Margin Per Unit

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