From the given information, the company currently earns a total contribution margin of $240,000
Contribution margin = (sales-Variable costs)
= (12-6) × 40,000
= $240,000
- You can present the contribution margin as a gross or per-unit figure. After deducting the variable element of the company's costs, it indicates the additional revenue made for each product or unit sold.
- By subtracting the variable cost per unit from the selling price per unit, the contribution margin is calculated. The measure, which is often referred to as dollar contribution per unit, shows how much a specific product contributes to the company's overall profit.
- It offers a means of illustrating the profit potential of a specific good or service a business offers, as well as the percentage of revenue that goes toward paying the business' fixed expenses. Profit is defined as whatever revenue that remains after covering fixed costs.
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