Soumik Dutta
The Contribution Margin is the difference between the revenue and total variable cost. Contribution Margin or CM is a significant feature to measure the progress of any organization. We can easily calculate the contribution margin in Excel for any company. In this article, we will demonstrate the process with two different examples. If you are interested to know about the process, download our practice workbook and follow us.
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What Is Contribution Margin?
The Contribution Margin is a term that shows us the difference between the total sales and the total direct variable costs. We can also state this term as the sum of the fixed cost and the net profit. This value helps us to predict the break-even point of any organization. We can calculate the value either per unit or for the entire batch.
The mathematical expression of the Contribution Margin for per unit product is:
Besides it, the general expression to determine the Contribution Margin for the entire batch is:
In addition, there is another formula to calculate the value of the Contribution Margin, which is:
2 Suitable Examples to Calculate Contribution Margin in Excel
To demonstrate the examples, we consider the dataset of some variables of a company. The total number of sold products is in cell C5, and five different types of variable costs are in the range of cells C7:C11. Input the following variables accurately for your organization like the image shown below.
After that, in cell C12, use the SUM function to sum all the variable costs. For that, write down the following formula into the cell and press Enter.
=SUM(C7:C11)
1. Calculate Contribution Margin per Unit
In this example, we will calculate the Contribution Margin per unit. The steps to calculate the value are given as follows:
📌 Steps:
- First, we will determine the variable cost required for unit production.
- Now, entitled the cell B14 as Total Variable Cost per Unit.
- Then, in cell C14, write down the following formula:
=C12/C5
- Press Enter.
- You will get the amount of total variable cost required for the production of a single unit.
- After that, to calculate the Contribution Margin, titled cell B15 as Contribution Margin per Unit.
- Now, write down the following formula into cell C15.
=C7-C14
- Press Enter.
- Finally, you will get the value of the Contribution Margin for a single product.
Thus, we can say that our method worked perfectly, and we are able to calculate the Contribution Margin in Excel.
Read More: How to Calculate Sales Margin in Excel (with Quick Steps)
2. Estimate Contribution Margin for Entire Batch
In the following example, we are going to calculate the Contribution Margin for an entire batch of products. The steps to calculate the value are given below:
📌 Steps:
- At first, we will estimate total sales and for that entitled the cell B14 as Total Sales.
- Now, in cell C14, write down the following formula:
=C5*C7
- Press Enter.
- You will get the value of total sales.
- Then, to calculate the Contribution Margin, titled cell B15 as Total Contribution Margin and write down the following formula into cell C15.
=C14-C12
- Press Enter.
At last, you will get the value of the Contribution Margin for an entire batch of products.
Alternative Way to Calculate Total Contribution Margin
You can also evaluate the Total Contribution Margin from the multiplication of the Contribution Margin of unit product and the number of total products. The steps of this process are:
📌 Steps:
- First of all, we will calculate the Total Variable Cost per Unit, and for that, write down the following formula into cell C14,
=C12/C5
- Press Enter.
- After that, to calculate the Contribution Margin per Unit, write down the following formula into cell C15.
=C7-C14
- Again, press Enter.
- At last, to determine the value of Total Contribution Margin, write down the following formula into cell C16.
=C5*C15
- Finally, press Enter.
- You will get the value of the Total Contribution Margin for an entire batch of products and you may notice that the value of the Total Contribution Margin in both methods matched with each other.
Finally, we can say that both approaches worked successfully, and we are able to calculate the Contribution Margin in Excel.
Read More: Excel Formula to Add Margin to Cost (4 Suitable Examples)
How to Calculate Contribution Margin Ratio
📖 What Is Contribution Margin Ratio?
The Contribution Margin Ratio represents the value of the Contribution Margin in terms of the percentage of the product price. This value is the ratio of the difference between total sales and total variable costs and the value of total sales. The mathematical expression of the Contribution Margin Ratio is:
The steps to calculate the Contribution Margin Ratio are given below:
📌 Steps:
- At first, we will calculate the value of Total Sales. For that, write down the following formula into cell C14.
=C5*C7
- Press Enter.
- Now, to calculate the Contribution Margin Ratio, write down the following formula into cell C15.
=(C14-C12)/C14
- Again, press Enter.
- Set the cell format as Percentage from the Number group, locates in the Home tab.
- You will get the value of the Contribution Margin Ratio.
Finally, we can say that process worked perfectly, and we are able to calculate the Contribution Margin Ratio in Excel.
Read More: How to Calculate Margin Percentage in Excel (5 Easy Ways)
Conclusion
That’s the end of this article. I hope that this article will be helpful for you and you will be able to calculate the Contribution Margin in Excel. Please share any further queries or recommendations with us in the comments section below if you have any further questions or recommendations.
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