- 1). Calculate the total variable costs. Variable costs include expenses for labor, materials and supplies. Variable cost per unit remains the same; the costs only rise or fall depending on the amount of production.
- 2). Determine the sale price per unit. Sale price is a function of the cost it takes to produce the item and the profit you intend to make on the item. For example, if it costs you $3 to produce each unit, and you want to realize a profit of 30 percent, your sale price is: $10 ($3 divided by .30)
- 3). Calculate the contribution margin per unit by subtracting the sale price per unit from the variable cost per unit. In this example, the contribution margin is $7 ($10 - $3).
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