Which formula gives the contribution margin per unit?

Which formula gives the contribution margin per unit?

• A. Selling price divided by variable cost per unit.
• B. Selling price minus variable cost per unit.
• C. Fixed costs divided by units.
• D. Variable cost per unit minus selling price.

Answer: (B)

The main idea is to know how much each unit adds to fixed costs and profit after covering its variable costs. That per-unit amount is found by subtracting the variable cost per unit from the selling price per unit. So the contribution margin per unit equals price minus variable cost. Why this is the best fit: it directly measures the incremental amount available to cover fixed costs and contribute to profit for every unit sold. For example, if the selling price is 100 and the variable cost is 60, the contribution margin per unit is 40. This figure is also what you use to calculate how many units you must sell to break even (fixed costs divided by the contribution margin per unit) and to analyze pricing decisions. The other options don’t fit because they describe different concepts or mix the operations incorrectly. Dividing the selling price by the variable cost per unit yields a ratio, not the actual amount left after variable costs. Dividing fixed costs by units gives the break-even point in units, not the per-unit contribution. Subtracting the selling price from the variable cost would produce a negative number and does not represent the amount contributed per unit.

The main idea is to know how much each unit adds to fixed costs and profit after covering its variable costs. That per-unit amount is found by subtracting the variable cost per unit from the selling price per unit. So the contribution margin per unit equals price minus variable cost.

Why this is the best fit: it directly measures the incremental amount available to cover fixed costs and contribute to profit for every unit sold. For example, if the selling price is 100 and the variable cost is 60, the contribution margin per unit is 40. This figure is also what you use to calculate how many units you must sell to break even (fixed costs divided by the contribution margin per unit) and to analyze pricing decisions.

The other options don’t fit because they describe different concepts or mix the operations incorrectly. Dividing the selling price by the variable cost per unit yields a ratio, not the actual amount left after variable costs. Dividing fixed costs by units gives the break-even point in units, not the per-unit contribution. Subtracting the selling price from the variable cost would produce a negative number and does not represent the amount contributed per unit.