when to use contribution margin analysis
investors examine contribution margins to determine if a company is using its revenue effectively a high contribution margin indicates that a company tends to bring in more money than it spends very low or negative contribution margin values indicate economically nonviable products whose manufacturing and sales eat up a large portion of the revenues low values of contribution margins can be observed in the labor intensive industry sectors like manufacturing as the variable costs are higher while high values of contribution margins are prevalent in the capital intensive sectors the concept of contribution margin is applicable at various levels of manufacturing business segments and products the figure can be computed for an entire corporation for a particular subsidiary for a particular business division or unit for a particular center or facility for distribution or sales channel for a product line or for individual products 