Which expression represents the contribution margin per unit?

Which expression represents the contribution margin per unit?

• A. P × VC
• B. P − FC
• C. P − VC
• D. VC − P

Answer: (C)

The key idea is that the contribution margin per unit shows how much money from each unit sold is left after paying the variable cost, to cover fixed costs and contribute to profit. It is calculated as selling price per unit minus variable cost per unit. With price P and variable cost per unit VC, the contribution margin per unit is P − VC. The other expressions don’t fit: multiplying price and variable cost (P × VC) isn’t a margin; subtracting fixed costs (P − FC) isn’t per unit and mixes in fixed costs; and subtracting price from variable cost (VC − P) gives a negative value, the opposite of the contribution margin.

The key idea is that the contribution margin per unit shows how much money from each unit sold is left after paying the variable cost, to cover fixed costs and contribute to profit. It is calculated as selling price per unit minus variable cost per unit. With price P and variable cost per unit VC, the contribution margin per unit is P − VC. The other expressions don’t fit: multiplying price and variable cost (P × VC) isn’t a margin; subtracting fixed costs (P − FC) isn’t per unit and mixes in fixed costs; and subtracting price from variable cost (VC − P) gives a negative value, the opposite of the contribution margin.