Amanufacturer of tiling grout has supplied the following data: kilograms produced and sold 310,000 sales revenue $ 1,940,000 variable manufacturing expense $ 959,000 fixed manufacturing expense $ 264,000 variable selling and administrative expense $ 357,000 fixed selling and administrative expense $ 230,000 net operating income $ 130,000 the company's contribution margin ratio is :

contribution margin ratio                                           36,9588%

Explanation:

sales                                                                  $1.940.000,00

variable manufacturing expenses                     $959.000,00

variable selling and administrative epxense     $264.000,00

total variable cost                                                   $1.223.000,00

contiribution margin                                               $717.000,00

contribution margin ratio                                           36,9588%

The fixed cost are not involve in the calculations for the contribution margin or the contribution margin ratio.

So it is highly important to use the net value of sales and do not put any fixed cost inside the calculation as well as not leave any variable cost out!

Contribution Margin = Sales Revenue - Variable Cost

On Unit level, this means how much gross profit each unit generates.

A negative contribution margin means the product is unviable and the price must go up or the company must take the endeavor to decrease its cost as soon as possible. If neither of both options is possible, then the company will cease production in the short or long run, because it will be losing money for just doing the product.

A positive number means the product can cover variable costs with revenue from sales.

On a company level, this will be the amount left to cover fixed expenses and to make earnings.

The contribution margin is Dollar measurement!

Contribution Margin Ratio

Contribution Margin Ratio = Contribution Margin / Sales

It could be read as cents per unit of sale or, in a better way, as the percent of the sales volume that's left over to cover the fixed cost.

Because of this, it is used to calculate the break-even point in dollars:

break-even point = fixed cost / contribution margin ratio

The contribution margin ratio is percent measurement!

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