Course Outline
Join PRO

What is contribution margin?

Harold Averkamp, CPA, MBA

Definition of Contribution Margin

In accounting, contribution margin is defined as: revenues minus variable expenses. The contribution margin can be expressed as an amount and/or as a ratio or percent of revenues.

The contribution margin tells us how much of the revenues will be available (after the variable expenses are covered) for the fixed expenses and net income.

The contribution margin amount or ratio (ratio) can be presented for:

  • The company as a whole
  • A product line
  • An individual unit of a product

Example of Contribution Margin

Let’s assume that a manufacturer has only one product and 80,000 units were manufactured and sold during a recent year. The selling price was $10 per unit. The variable expenses were $4 per unit (consisting of manufacturing costs of $3 per unit and variable SG&A expenses of $1 per unit). The company’s fixed expenses were $390,000 (consisting of fixed manufacturing costs of $300,000 and fixed SG&A expenses of $90,000).

The amount of the company’s contribution margin was $480,000 calculated using the following amounts:

  • Revenues of $800,000 (80,000 units X $10 per unit)
  • Variable expenses of $320,000 (80,000 X $4 per unit)

The contribution margin ratio for the company was 60% (contribution margin of $480,000 divided by revenues of $800,000).

The contribution per unit of the company’s only product was $6 consisting of revenues of $10 minus the variable expenses of $4. The contribution margin ratio for the product was also 60% (contribution margin of $6 divided by the selling price of $10).

The contribution margin is a key component in computing a company’s break-even point.

Join PRO to Track Progress
Must-Watch Video

Advance Your Accounting and Bookkeeping Career

  • Perform better at your job
  • Get hired for a new position
  • Understand your small business
  • Pass your accounting class
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews



PRO Plus

Lifetime Access (One-Time Fee)
Word Scrambles
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on

Learn More About Harold

Certificates of

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus