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In this session, we explore the contribution margin ratio, which is expressed as a percentage. Previously, we covered how to compute the contribution margin, defined as the selling price minus the variable cost. For example, if a product sells for $10 and costs $6, the contribution margin per unit is $4 ($10 - $6). To find the contribution margin ratio, we divide the contribution margin by the sales price. Using the earlier example, the contribution margin ratio would be $4 divided by $10, allowing us to understand how much each unit contributes to the overall margin, which is crucial for making informed business decisions.
