What is the significance of marginal contribution rate?

Marginal contribution is a very important concept often used in management accounting. It refers to the balance of sales revenue MINUS variable costs, which is commonly referred to as gross profit.

Marginal contribution rate-the percentage of marginal contribution to sales revenue, and its formula is:

Marginal contribution rate = (marginal contribution/sales revenue) × 100%

If it is a product, then:

Marginal contribution rate = (unit marginal contribution/unit price) × 100%

In the case of multiple products:

Marginal contribution rate = ∑ (Marginal contribution rate of each product × proportion of sales revenue of this product to total sales revenue)

General marginal contribution rate refers to the marginal contribution rate of products.

The marginal contribution rate can be understood as the marginal contribution ratio per yuan of sales revenue, which reflects the contribution ability of products to enterprises.

The concept of marginal contribution rate is "variable cost rate", that is, the percentage of variable cost in sales revenue. The formula is:

Variable cost rate = (variable cost/sales revenue) × 100%

The sum of variable cost rate and marginal contribution rate is 1, because the sum of total variable cost and total marginal contribution is exactly equal to total sales revenue. Therefore, the variable cost rate usually refers to the product variable cost rate.

The marginal contribution equation reflects the size of marginal contribution in the profit and loss equation, so as to clearly express the quantitative relationship among cost, quantity and profit.

Profit = sales volume × unit marginal contribution-fixed cost