A Contribution Margin Calculator helps you understand how much each unit sold contributes toward covering fixed costs and generating profit. It’s one of the most important tools in managerial accounting and business decision-making.

Contribution Margin Formulas

3.1 Contribution Margin per Unit

$C{M}_{\text{unit}}=SP-VC$

Where:

• $SP$= Selling Price per Unit
• $VC$​​​​​​​ = Variable Cost per Unit

3.2 Contribution Margin Ratio

$CMR=\frac{C{M}_{\text{unit}}}{SP}$

3.3 Total Contribution Margin

$TCM=C{M}_{\text{unit}}\times Q$

Where QQQ = Units Sold

3.4 Break-Even Point (Units)

$BEU=\frac{FC}{C{M}_{\text{unit}}}$​​​​​​​

Where FCFCFC = Fixed Costs

3.5 Profit (or Loss)

$Profit=TCM-FC$​​​​​​​

Worked Example

Let’s calculate contribution margin using the following inputs:

• Selling Price per Unit (SP): $50
• Variable Cost per Unit (VC): $30
• Fixed Costs (FC): $10,000
• Units Sold (Q): 1,000

Step 1 — Contribution Margin per Unit

$C{M}_{\text{unit}}=50-30=20$

Step 2 — Contribution Margin Ratio

$CMR=\frac{20}{50}=0.40=40\%$

Step 3 — Total Contribution Margin

$TCM=20\times 1000=20000$

Step 4 — Break-Even Units

$BEU=\frac{10000}{20}=500\text{}\text{units}$$$$$

Step 5 — Profit

$Profit=20000-10000=10000$

Final Output for This Example

• Contribution Margin per Unit: $20
• Contribution Margin Ratio: 40%
• Total Contribution Margin: $20,000
• Break-Even Point: 500 units
• Profit: $10,000

FAQs

1. What is Contribution Margin?

Contribution margin is the amount each unit contributes toward covering fixed costs and generating profit. It is calculated by subtracting the variable cost per unit from the selling price per unit.

2. Why is Contribution Margin important?

It helps businesses understand how much money is available to cover fixed expenses and profit. It also helps with pricing decisions, analyzing product profitability, and break-even analysis.

3. What is Contribution Margin Ratio?

The contribution margin ratio (CMR) shows the percentage of each sales dollar that contributes to fixed costs and profit. It is calculated as:
Contribution Margin per Unit ÷ Selling Price per Unit.

4. How is Contribution Margin different from Gross Profit?

Gross profit subtracts cost of goods sold (COGS) from revenue, which includes both variable and some fixed costs.
Contribution margin subtracts only variable costs, making it better for evaluating product-level profitability.

5. Can Contribution Margin be negative?

Yes. If the variable cost per unit is greater than the selling price, the contribution margin becomes negative. This means the business loses money on every unit sold and should stop selling or raise the price.