What is contribution margin in SAP CO - Controlling?

SAP Term: contribution margin

• Component: CO

• Component Name: Controlling

• Description: Difference between the unit revenue and the direct cost revenue that can be assigned directly to a cost object. The difference is the amount that a cost object contributes to covering costs that cannot be directly apportioned to it.

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• Key Concepts: 
  Contribution margin is a term used in SAP Controlling (CO) to refer to the difference between the sales revenue and the variable costs associated with producing a product or service. It is calculated by subtracting the variable costs from the sales revenue. The contribution margin is an important measure of profitability, as it indicates how much of each sale contributes to covering fixed costs and generating a profit. 
  
  How to use it: 
  In SAP Controlling, contribution margin can be calculated by entering the sales revenue and variable costs into the system. The system will then calculate the contribution margin automatically. This information can then be used to analyze profitability and make decisions about pricing, production, and other aspects of business operations. 
  
  Tips & Tricks: 
  When calculating contribution margin in SAP Controlling, it is important to ensure that all relevant costs are included in the calculation. This includes not only direct costs such as materials and labor, but also indirect costs such as overhead and marketing expenses. 
  
  Related Information: 
  Contribution margin is closely related to other measures of profitability such as gross profit margin and net profit margin. It is also related to break-even analysis, which uses contribution margin to determine the point at which a business will begin to make a profit.