Accounting Dictionary

Contribution Margin Ratio

The Contribution Margin Ratio is Contribution Margin divided by sales.

This ratio, sometimes called the Profit-Volume Ratio, indicates the percent of each sale that can go towards paying fixed costs like rent and supervisors’ salaries. For example, if I sold shoes for $30 a pair and the Contribution Margin for each pair was $10, my Contribution Ratio would be $10/$30 or 33%. 33% of each sales dollar will go toward paying the rent and other fixed costs.

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