I though contribution margin per unit was calculated as price per unit - variable cost per unit..but I've seen cases where they multiply profit margin with the price per unit to get contribution margin…is this correct? What you end up with in this case is the profit per unit right..so how can you equate that to the total fixed costs?
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Hi there,
If that is indeed what cases are doing, that is totally wrong.
Your contribution margin or product profit margin is indeed the price minus the attributable costs (VC). Then the total contribution margin is this margin times the # of units sold.
FC are then treated entirely seperately.
Hi!
Can you post the prompt of the case/question here?
Best,
Anto
