What is the benefit?

The post measures the amount of total profit that adds every sale. This is the difference it sells; It is also possible that the change it makes is to reduce losses rather than increase profits. The image could also be negative, which means that every sale reduces total profits, even if it would be a sign of a serious problem with its business settings.

The image can be expressed in three different ways. The total margin of the contribution is the total income minus variable costs. Variable costs are the costs that are specifically associated with production and could therefore include the cost of raw materials; They do not include fixed costs such as renting a factory. The total margin therefore shows how much left of the sale to help compensate, and hopefully it will exceed fixed costs. In other words, it is the amount that the company receives for each unit sold, minus the specific costs associated with the production of this unit. The amount that the company receives does not necessarily have to be the price that the end user pays, thereforethat the product can go through a retailer. The range of unit post posts can show how profitable the specific product line is. It can also show how the level that sales would have to increase to have a specific impact on the total profits of the company.

The ratio of the margin of the contribution is the margin of unit contributions divided by the unit price. The same number can be developed by defining the total margin of the contribution according to the total income. The image effectively shows what share of the selling price will remain after variable costs to cover fixed costs and finally achieve profit.

The most common way of displaying the concept is in a graph that shows the way in which increased sales affects overall profitability. Each sale adds some companies for the company. Of course, these sales are not enough to cover fixed costs and the company will be in loss. As the number of sales increases, finally profits fromSales cover fixed costs and the company even breaks. After this point, the increase in sales increases the total profit.

There are some limitations for using the concept in calculations. The most important thing is that it works provided that the production costs per unit are consistent. In practice, the more units the company produces, the lower its variable costs per unit. This is because of savings of the extent, such as getting a discount on raw materials when purchased in a large number.