The companys contribution margin (sales-variable costs) is an important and useful calculation. If we assume that per unit variable costs are constant, it indicates how much of each additional sales dollar will increase operating income. Some companies have high contribution margin (relatively low variable cost/high fixed costs) and some companies have a low contribution margin (relatively high variable costs/low fixed costs). Companies with a high contribution margin (ratio) should always operate at capacity as each additional sales dollar contributes a higher percentage to operating income.

Which industries do you think have a high or low contribution margin?