# Break Even Analysis – Contribution Margin

An important term used with break-even point or break-even analysis is contribution margin. In equation format it is defined as follows:

Contribution Margin = Revenues – Variable Expenses

The contribution margin for one unit of product or one unit of service is defined as:

Contribution Margin per Unit = Revenues per Unit – Variable Expenses per Unit

At Oil Change Co. the contribution margin per car (or per oil change) is computed as follows:

Contribution Margin per car = Revenues per car – Variable Expenses per car

Contribution Margin per car = \$24 – \$9

Contribution Margin per car = \$15

The contribution margin per car lets you know that after the variable expenses are covered, each car serviced will provide or contribute \$15 toward the Oil Change Co.’s fixed expenses of \$2,400 per week. After the \$2,400 of weekly fixed expenses has been covered the company’s profit will increase by \$15 per car serviced.

#### Be the first to commenton "Break Even Analysis – Contribution Margin"

This site uses Akismet to reduce spam. Learn how your comment data is processed.