The Impact of the Contribution Margin on the Activity of a Company
Year: 2025
Type: article
Abstract: Contribution margin is an economic-financial indicator that is the basis for determining the profit of a commercial company, taking into account variable costs and, at the same time, giving us the possibility of obtaining a break-even point that determines the value of sales for the company to make a profit. At the same time, it allows the use of scenarios both in the sale of products and in the case of price changes or changes in variable costs. Contribution margin also makes it possible to assess whether a particular product or service is profitable and therefore worth continuing to offer, which makes it possible to identify products that have a high contribution margin and are valuable to the company.This indicator is used in financial projections to estimate the impact of sales on profit, which is the basis for budgeting for a financial year. In our scientific approach, we have tried to show all these things, in particular by using the scenario method, especially in the current conditions where the variation of some expenses underlying variable costs change their values quite often and different strategies have to be applied in order to respect the indicators that were the basis for the budgeting. It is not always possible to meet these indicators, but in today's market conditions, the companies that are likely to survive are those that are able to adapt quickly to these market changes and, not least, to the changes made by their competitors in the same competitive market, because let's not forget that there are several competitors in a market and each one is trying to maximise its profit in order to continue its activity.
Author: RUS MIRCEA-IOSIF
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W7117089990
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