Answer :
Sales minus variable costs. Contribution margin is the revenue left after eliminating variable costs like direct labor and raw materials from total sales revenue. This statistic determines a product's profitability.
Variable costs are subtracted from total sales revenue to determine contribution margin. Direct labor and raw materials are variable costs that vary with production and sales. It determines product or service profitability. Contribution margin can be used to compare product line profitability. The more profitable product line has a bigger contribution margin.
Pricing and discount adjustments affect contribution margin. Contribution margin helps evaluate the profit impact of a product price reduction. Contribution margin can also be used to calculate the profit impact of discounts and promotions.
Contribution margin helps organizations evaluate product and service profitability. It also assesses how pricing and discounts affect product or service profitability.
To learn more about contribution margin, reference:
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