Amount remaining from sales after variable costs, used to cover fixed costs and then contribute to profit.
Contribution margin is the amount remaining from sales after variable costs are deducted. That remaining amount first covers fixed costs and then contributes to profit.
Contribution margin is a core managerial-accounting measure because it helps managers judge pricing, sales mix, special orders, and the volume needed to cover fixed costs. It is especially useful for short-term decision support.
The measure can be stated per unit or in total. The basic formula is:
Contribution margin = sales - variable costs.
Managers often pair it with fixed-cost information to evaluate break-even points and target-profit scenarios.
If a product sells for 80 and variable cost per unit is 50, the unit contribution margin is 30. Each additional unit sold contributes 30 toward fixed costs and then profit.
Contribution margin is not the same as gross profit. Gross profit is a financial-statement concept tied to cost of goods sold. Contribution margin is a managerial view built around variable-cost behavior.