How to Calculate Variable Contribution Margin

The variable contribution margin, also known as the contribution margin or gross profit, describes the amount of profit generated by the sale of an item for a company. The variable contribution margin considers the variable costs associated with a product but does not consider any of the fixed costs associated with the item. You can manually calculate the variable contribution margin for any product.

  1. 1.

    Determine the sales price of an item. For example, assume a company sells a widget for $5.

  2. 2.

    Determine all of the variable costs associated with producing the product. Variable costs are those costs that change based on the volume of a product produced. For example, raw materials and hourly labor are variable costs, but the cost of the machine used to produce the product represents a fixed cost. For example, assume that the total variable costs to produce the widget are $2.

  3. 3.

    Subtract the variable costs from the sales price. Continuing the same example, $5 - $2 = $3. This figure represents the variable contribution margin of the product.