Week 15 Day 4 Action Items

Day 4

• [ ] Learn the formulas for calculating break-even and contribution margin ratios.
• [ ] Apply these ratios to your business context to make informed decisions.

Contribution Margin Formula (related to CVP)

$$ \text{Contribution Margin}=\text{Selling Price per Unit}-\text{Variable Cost per Unit}) $$

Explanation:

• Selling Price per Unit: This is the price at which a unit of the product or service is sold.
• Variable Cost per Unit: Variable costs are the costs that vary with each unit produced or sold.

In CVP analysis, the Contribution Margin per unit represents the amount of revenue available to cover fixed costs and contribute to profit after covering variable costs. It helps businesses understand how changes in sales volume impact their profitability.

For a more comprehensive view, the Contribution Margin can be expressed both in terms of a total amount (across all units sold) and as a percentage of the selling price. The Contribution Margin Ratio, often expressed as a percentage, is calculated by dividing the Contribution Margin per Unit by the Selling Price per Unit.

Use the formula and the elements you identified yesterday to determine the contribution margin for your desired product or service. You should still have the figures for the break-even point from last week.