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CONTRIBUTION MARGIN RATIO

6 May, 2015 - 17:10

The contribution margin ratio is computed by subtracting variable expenses from sales and dividing the results by sales. The contribution margin ratio provides useful information on a firm's profit potential and the relationships between costs, profits, and volume. Contribution margins are often used to set business policies. Firms with large contribution margins and excessive productive capacity often concentrate their efforts on increasing production and sales volume.