Assigning Cost
The contribution ratio of 40% in the example means that for each dollar of sales, 40 cents remained for the company to use for fixed expenses and net operating income. The contribution margin equals sales less variable expenses. The calculation uses totals on a per unit basis and as a percentage of sales, as illustrated in the example below.
Many businesses prepare comparative CVP analysis for each item sold, so they can identify which items are doing better than others.
