Contribution Margin

Contribution Margin
Contribution margin is a cost accounting concept, and is defined as the amount by which sales revenue exceeds variable costs. Contribution margin is analyzed to measure operating leverage, i.e., how growth in sales translates to growth in profits. Contribution margin is calculated using the following formula:

Generally, low contribution margins can be seen in the labor-intensive tertiary sectors, while high contribution margins are prevalent in the capital-intensive sectors.

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