formulas

Contribution Margin (CM)

The difference between sales and variable costs.

Formula for Contribution Margin (CM)

Sales - Variable Costs.

CM per Unit

The difference between selling price per unit and variable cost per unit.

Formula for CM per Unit

Selling Price per Unit - Variable Cost per Unit.

Contribution Margin Ratio (CM Ratio)

A measure of profitability, calculated as CM per Unit divided by Selling Price per Unit.

Formula for CM Ratio

CM per Unit / Selling Price per Unit.

Variable Cost Ratio

The proportion of variable costs to sales, calculated as 1 - CM Ratio.

Break-even Point (Units)

The number of units that must be sold to cover all fixed costs.

Formula for Break-even Units

Fixed Costs / CM per Unit.

Break-even Point (Sales Revenue)

The amount of revenue needed to cover fixed costs.

Formula for Break-even Sales

Fixed Costs / CM Ratio.

Target Income (Units)

The number of units that must be sold to achieve a specific profit.

Formula for Units for Target Income

= (Fixed Costs + Target Income) / CM per Unit.

Margin of Safety (MOS)

The amount by which actual sales exceed break-even sales.

Formula for Margin of Safety

Actual Sales - Break-even Sales.