Contribution margin shows you the aggregate amount of revenue available after variable costs to cover fixed expenses and provide profit to the company.
A contribution margin is important because it shows how much money is available to pay the fixed costs such as rent and utilities.
Formula to calculate contribution margin.
Suppose a company’s total sale were $ 350,000 while the total variable costs was $ 80,000. Calculate the contribution margin.
Thus, the company’s contribution margin is $ 270,000.