What does the contribution margin per unit represent?

The contribution margin per unit represents the amount of revenue that remains after all variable costs have been subtracted from sales revenue for each unit sold. This means it indicates how much of the sales price contributes to covering fixed costs and generating profit.

The contribution margin is crucial for decision-making in cost and managerial accounting, as it helps businesses determine the impact of their sales on profitability. By analyzing contribution margins, management can assess the profitability of individual products and make informed decisions on pricing, production, and sales strategies.

Understanding this concept is vital, as it illustrates how effectively a company is using its sales to cover costs and contribute to profit. The other options do not accurately capture this definition: selling price refers to the total price paid by customers; total fixed costs relate to expenses that remain constant regardless of production volume; while sales revenue minus fixed costs looks at overall profitability rather than the contribution margin’s focus on variable costs.