Total contribution margin

Definition

Total Contribution Margin is the amount by which a company's total sales revenue exceeds its total variable costs. It helps to cover fixed costs and contribute to net profit.

5 Must Know Facts For Your Next Test

1. Total Contribution Margin can be calculated by subtracting total variable costs from total sales revenue.
2. It is a key metric in Cost-Volume-Profit (CVP) analysis.
3. A higher Total Contribution Margin indicates better ability to cover fixed costs and generate profit.
4. The Total Contribution Margin is used to calculate the break-even point and target profit levels.
5. It can be expressed as a percentage of sales, showing how much of each dollar contributes to covering fixed costs.

Review Questions

• How do you calculate Total Contribution Margin?
• Why is Total Contribution Margin important in CVP analysis?
• What does a higher Total Contribution Margin indicate about a company's financial health?

Related terms

Contribution Margin per Unit: The amount by which the selling price of one unit exceeds its variable cost.

Contribution Margin Ratio: The percentage of each sales dollar that contributes to covering fixed costs.

Break-Even Point: The level of sales at which total revenues equal total costs, resulting in zero profit.