Company has a contribution margin of $70,000.
Contribution margin = Revenue – Variable Costs
= $120,000- $ 50,000
= $70,000
The portion of a product's sales revenue that isn't used to cover variable costs and instead goes toward covering the company's fixed costs is known as the contribution margin. Major component of break-even analysis is the idea of contribution margin.
Labor-intensive company with few fixed expenses tend to have low contribution margins, whereas capital-intensive, industrial businesses have more fixed costs and, thus, higher contribution margin. The difference between a product's sale price and the variable costs related to its manufacture and sale is calculated as the contribution margin.
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