The contribution margin is used to pay off the fixed costs of the 

business. Whatever is left after

that will be considered as net income. To determine the company’s contribution margin we need
to deduct the variable expenses from the revenues (Walther & Skousen, 2009).

The formula is:

Contribution Margin = Sales Revenue – Variable Costs

The contribution margin percentage is very useful for management when performing break even
analysis. The contribution margin ratio can be calculated for the whole business or for single
units, but the more useful expression is for single units (LaMarco, 2018).

The formula is:

Unit Contribution Margin Percent = Unit Contribution Margin/Unit Sales Price

In order to calculate contribution margin and unit contribution margin percent, we need the
following data: (I will illustrate this using the data I gathered from Apple Inc.)
 Number of units sold - 7,700,000 (Hristov, 2020)
 Unit Selling Price - $ 1,100 (Brown, 2020)
 Unit Variable Cost - $ 495 (Brown, 2020)
 Fixed Costs - $ 34,462,000 (Yahoo, 2021)

1. Contribution Margin
UNIT
UNITS TOTAL ($) PER UNIT ($) RATIO %
PRICE
7,700,00
SALES 0 1,100 8,470,000,000 1,100 100%
7,700,00
VARIABLE COST 0 495 3,811,500,000 495 45%
CONTRIBUTION
MARGIN 4,658,500,000 605 55%
FIXED COSTS 34,462,000
NET INCOME 4,624,038,000

2. Contribution Margin Percent

Contribution Margin per Unit - $ 605

Sales Price per Unit - $1,100

Contribution Margin per Unit / Sales Price per Unit = Contribution Margin Percent
605 / 1,100 = 0.55
0.55 = 55%

Contribution Margin Percent = 55%

After analyzing the result, I found out that high contribution margin usually implies low
variable costs and high selling price. These are good signs because It shows that the
company makes more than enough sales to cover all the expenses.

Word Count: 279

References:

Brown, R. (2020, March 27). The Cost of Making an iPhone. Investopedia.

https://www.investopedia.com/financial-edge/0912/the-cost-of-making-an-iphone.aspx

Hristov, V. (2020, September 1). iPhone 11 was the best selling phone in the world so far in
2020 and no other phone came even close. Phone Arena.
https://www.phonearena.com/news/best-selling-phones-2020_id126887.

LaMarco, N. (2018, August 29). What is a Contribution Margin Percent? Small Business -
Chron.com. https://smallbusiness.chron.com/contribution-margin-percent-17724.html.

Walther, L. M., & Skousen, C. J. (2009). Managerial and Cost Accounting. Bookbon.com.
Ventus Publishing ApS. https://library.ku.ac.ke/wp-
content/downloads/2011/08/Bookboon/Accounting/managerial-and-cost-accounting.pdf.

Yahoo! (2021, April 25). Apple Inc. (AAPL) Income Statement. Yahoo! Finance.
https://finance.yahoo.com/quote/AAPL/financials?p=AAPL.