Unit Contribution Margin Essay Example | Topics and Well Written Essays - 500 words

Unit Contribution Margin - Essay Example At break-even point, the Cost-Volume-Profit analysis equation is reduced to: PX = xv + FC Where p is the price per unit, x is the number of units, v is the variable cost per unit, and total fixed cost is FC. Solving the equation for Break-even sales units Break-even Sales Units = x = FC à · ( p − v ) Since unit contribution margin (Unit CM) is equal to unit sale price (p) less unit variable cost (v) thus, Unit CM = p − v Hence, Break-even Sales Units = x = FC à · Unit CM Break-even Sales Dollars = Price per Unit Ãâ€" Break-even Sales Units ; or What is contribution margin ratio and when is it most useful? The contribution margin ratio is the measure of sales, facility returns or selling price that residues after all variable costs and variable costs have been enclosed. Contribution margin ratio= (Sales-variables) / sales Contribution margin ratio plays a key role in; †¢ Determining the profits that will rise from several sales levels †¢ Assessing the influenc e on earnings of changes in sales. In particular, it can be used to estimation the decline in profits if sales drop, and so is an standard tool in the making of budgets. How is the breakeven equation modified to take into account the sales required to earn a target profit?