Finance Formulas / July 19, 2018 / Aniyah Booth
The accounting equation is sometimes referred to as the "basic accounting equation" or balance sheet equation could also be written as Shareholders' Equity = Assets – Liabilities, where the statement is rearranged to reflect the residual claim of equity owners. Alternatively, one can rearrange the accounting statement and the results of the equation will still hold if done properly.
Contribution margin is a product’s price minus all associated variable costs, resulting in the incremental profit earned for each unit sold. The total contribution margin generated by an entity represents the total earnings available to pay for fixed expenses and to generate a profit. The contribution margin concept is useful for deciding whether to allow a lower price in special pricing situations. If the contribution margin at a particular price point is excessively low or negative, it would be unwise to continue selling a product at that price. It is also useful for determining the profits that will arise from various sales levels.
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