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Contribution Margin per unit

Contribution Margin per unit

The Contribution margin per unit is the selling price of one unit of goods minus the variable costs of making that unit.

The contribution margin per unit is the amount of money each sale contributes towards paying fixed costs. Once the fixed costs are paid, it will indicate how much profit is earned per unit sold. Let’s say it costs $1.00 for the materials and labor to make a pen and you sell each pen for $5.00. Every time you sell a pen you will have $4.00 to go towards paying the rent and other fixed costs. We say that $4.00 is the contribution margin per unit, the amount each sale contributes to paying fixed costs or earning profit.

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