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About Contribution Margin

Contribution margin is an important concept in the field of finance where it is taken as the product price after deducting all the variable cost. It will show the total profit after selling total unit. It represents the total earning earned by the firms which are available to pay fixed expenses of the business. It is in the form of profit earned during the particular period.

What is the Importance of Contribution Margin in Business?

It is very important in the business as it helps in

  • Deciding to lower the prices of the product in special pricing situation
  • If the contribution margin of the business is coming in negative part, then in that case business should not continue further.
  • It will also help the business in generating the profit of the concern which is further available for paying off the fixed cost.
  • Contribution margin is having simple formula that will help the business to find out the total amount which is termed as profit.

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