The contribution margin ratio is 36%.
Sales: 525000
Variable cost ratio: 64%
Variable cost (525000*64%) 336000
Contribution (Sales-Variable cost) 189000
Contribution margin ratio = Contribution /Sales *100
= $ 189000 /525000*100 = 36%.
A company's contribution margin ratio (CM ratio) is its revenue minus all variable costs, divided by its revenue. It represents the marginal benefit of producing one more unit.
The contribution margin ratio tells the company the difference between the cost of producing the product and the price of the product. The contribution margin ratio tells the business what percentage of sales revenue will be available to cover fixed costs, such as office space. “Contribution margin tells you the total available revenue after variable costs to cover fixed costs and generate a profit for the business,” says Knight. You can think of this as part of a sale that helps offset fixed costs.
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