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How to Calculate Contribution Margin


Contribution Margin
Per unit Contribution Margin =             sales price – variable cost per unit
                                                =          1500 – 900
                                                =          600
Total Contribution Margin        =          contribution margin per unit * unit sales
                                                =          600 x    500
                                                =          300,000
How many units must be sold to reach the breakeven point?
Breakeven point in units         =          fixed costs/contribution margin per unit
                                               =          240,000 /600
                                               =          400 units
Fixed Cost Calculation
Annual fixed manufacturing overhead    Rs. 140,000
 Fixed administrative expense is             Rs. 100,000
Total                                                        Rs. 240,000
Breakeven point in Rs.  =          breakeven point in units * sales price
                                      =         400 x 1500
                                     =          Rs. 600,000

How many units must the company sell to yield a profit of Rs. 900,000?
                                                                                =             Profit Required / Sales Price 
                                                                                =             900,000 / 1500
                                                                                =             600 units
If company sold 600 units then company can earn Rs. 900,000/- profit.

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