Finance Formulas / July 13, 2018 / Cecelia Weiss
Contribution margin is the sales price minus total variable costs, where variable costs might include materials, labor or overhead. For example, Company XYZ sells a product for $100 each. The company incurs a unit variable direct material expense of $12, unit variable labor expense of $25, $10 of variable overhead per unit and $8 of fixed overhead per unit.
Conversely, firms in sectors, such as utilities and telecommunications, which have large asset bases will have lower asset turnover. Since this ratio can vary widely from one industry to the next, considering the asset turnover ratios of a retail company and a telecommunications company will not make for an accurate comparison. Comparisons are only meaningful when they are made for different companies within the same sector.
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