When an organisation produces and sells a number of different products or services, the contribution margin per unit for each product is added together to get total contribution margin per unit and this is used to determine the breakeven point or target profit in units.

Question

Quizplus · Accepted Answer

The contribution margin per unit for each product cannot simply be added together to get a total contribution margin per unit because each product may have a different selling price and variable cost. Instead, the total contribution margin is calculated by subtracting total variable costs from total sales, and this figure is used in determining the breakeven point or target profit, not a combined per unit contribution margin.

When an Organisation Produces and Sells a Number of Different