Formulas to calculate contribution margin and contribution margin ratio:
Contribution Margin = sales – variable costs.
Contribution Margin Ratio = (sales – variable costs)/sales.
Contribution margin and contribution margin ratio definition and explanation:
Contribution margin is the amount generated by sales to cover fixed costs.
The contribution margin ratio indicates the percent of sales available to cover fixed costs and profits.
The contribution margin and contribution margin ratio are included in the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.