what is contribution margin example
Example of Contribution Margin. Suppose that a company is analyzing its revenues and expenses. The company has sales of $1,000,000 and variable costs of $400,000. The contribution margin for this example would be the difference of $1,000,000 and $400,000, which is $600,000.The $600,000 is the amount left over to pay fixed costs.he company has sales of $1,000,000 and variable costs of $400,000. The contribution margin for this example would be the difference of $1,000,000 and $400,000, which is $600,000. The $600,000 is the amount left over to pay fixed costs.
The contribution margin, sometimes used as a ratio, is the difference between a company's total sales revenue and variable costs. In other words, the contribution margin equals the amount that sales exceed variable costs. This is the sales amount that can be used to, or contributed to, pay off fixed costs.he contribution margin, sometimes used as a ratio, is the difference between a company's total sales revenue and variable costs. In other words, the contribution margin equals the amount that sales exceed variable costs. This is the sales amount that can be used to, or contributed to, pay off fixed costs.