Financial Terms
product contribution margin

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Definition of product contribution margin

Product Contribution Margin Image 1

product contribution margin

the difference between selling price and variable cost of goods sold

Related Terms:

After-tax profit margin

The ratio of net income to net sales.

Aggregate Production Function

An equation determining aggregate output as a function of aggregate inputs such as labor and capital.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Buy on margin

A transaction in which an investor borrows to buy additional shares, using the shares
themselves as collateral.


an incidental output of a joint process; it is salable,
but the sales value of by-products is not substantial enough
for management to justify undertaking the joint process; it
is viewed as having a higher sales value than scrap


A product that is an ancillary part of the primary production process, having
a minor resale value in comparison to the value of the primary product being
manufactured. Any proceeds from the sale of a by-product are typically offset
against the cost of the primary product, or recorded as miscellaneous revenue.


A material created incidental to a production process, which can be
sold for value.

Product Contribution Margin Image 2


Also the difference between the selling price and variable costs, which can be expressed either per
unit or in total.

Contribution margin

The difference between variable revenue and variable cost.

contribution margin

An intermediate measure of profit equal to sales revenue
minus cost-of-goods-sold expense and minus variable operating
expenses—but before fixed operating expenses are deducted. Profit at
this point contributes toward covering fixed operating expenses and
toward interest and income tax expenses. The breakeven point is the
sales volume at which contribution margin just equals total fixed

contribution margin

the difference between selling price and
variable cost per unit or in total for the level of activity; it
indicates the amount of each revenue dollar remaining
after variable costs have been covered and going toward
the coverage of fixed costs and the generation of profits

Contribution margin

The margin that results when variable production costs are subtracted
from revenue. It is most useful for making incremental pricing decisions
where a company must cover its variable costs, though perhaps not all of its fixed

contribution margin ratio

the proportion of each revenue dollar remaining after variable costs have been covered;
computed as contribution margin divided by sales

Contribution Principle

This is the principle which specifies the factors that must be taken into account when calculating dividends. At Canada Life, the key factors are: interest earnings, mortality, and operating expense.

Contribution Rate

The percentage tax charged by a state to an employer to
cover its share of the state unemployment insurance fund.

cost of production report

a process costing document that
details all operating and cost information, shows the computation
of cost per equivalent unit, and indicates cost assignment
to goods produced during the period

Defined contribution plan

A pension plan in which the sponsor is responsible only for making specified
contributions into the plan on behalf of qualifying participants. Related: defined benefit plan
Delayed issuance pool Refers to MBSs that at the time of issuance were collateralized by seasoned loans
originated prior to the MBS pool issue date.

Defined Contribution Plan

A qualified retirement plan under which the employer
is liable for a payment into the plan of a specific size, but not for the size
of the resulting payments from the plan to participants.

Dollar safety margin

The dollar equivalent of the safety cushion for a portfolio in a contingent immunization


EBITDA divided by total sales or total revenue.

economic production run (EPR)

an estimate of the number
of units to produce at one time that minimizes the total
costs of setting up production runs and carrying inventory

Effective margin (EM)

Used with SAT performance measures, the amount equaling the net earned spread, or
margin, of income on the assets in excess of financing costs for a given interest rate and prepayment rate

Equity contribution agreement

An agreement to contribute equity to a project under certain specified

equivalent units of production (EUP)

an approximation of the number of whole units of output that could have been
produced during a period from the actual effort expended
during that period; used in process costing systems to assign
costs to production

Factor of Production

A resource used to produce a good or service. The main macroeconomic factors of production are capital and labor.

Federal Insurance Contributions Act of 1935 (FICA)

A federal Act authorizing the government to collect Social Security and Medicare payroll taxes.

grade (of product or service)

the addition or removal of product
or service characteristics to satisfy additional needs, especially price

Gross Domestic Product

Total output of final goods and services produced within a country during a year.

Gross domestic product (GDP)

The market value of goods and services produced over time including the
income of foreign corporations and foreign residents working in the U.S., but excluding the income of U.S.
residents and corporations overseas.

Gross margin

Revenues less the cost of goods sold.

gross margin, or gross profit

This first-line measure of profit
equals sales revenue less cost of goods sold. This is profit before operating
expenses and interest and income tax expenses are deducted. Financial
reporting standards require that gross margin be reported in
external income statements. Gross margin is a key variable in management
profit reports for decision making and control. Gross margin
doesn’t apply to service businesses that don’t sell products.

Gross National Product

Total output of final goods and services produced by a country's citizens during a year.

Gross national product (GNP)

Measures and economy's total income. It is equal to GDP plus the income
abroad accruing to domestic residents minus income generated in domestic market accruing to non-residents.

Gross profit margin

Gross profit divided by sales, which is equal to each sales dollar left over after paying
for the cost of goods sold.

Gross Profit Margin

Gross profit divided by revenue.

Initial margin requirement

When buying securities on margin, the proportion of the total market value of
the securities that the investor must pay for in cash. The Security Exchange Act of 1934 gives the board of
governors of the Federal Reserve the responsibility to set initial margin requirements, but individual
brokerage firms are free to set higher requirements. In futures contracts, initial margin requirements are set by
the exchange.

Investment product line (IPML)

The line of required returns for investment projects as a function of beta
(nondiversifiable risk).

Joint product

A product that has the highest sales value from among a group of products
that are the result of a joint production process.

Lean production

The technique of stripping all non-value-added activities from
the production process, thereby using the minimum possible amount of resources
to accomplish manufacturing goals.

Maintenance margin requirement

A sum, usually smaller than -but part of the original margin, which must
be maintained on deposit at all times. If a customer's equity in any futures position drops to, or under, the
maintenance margin level, the broker must issue a margin call for the amount at money required to restore the
customer's equity in the account to the original margin level. Related: margin, margin call.


This allows investors to buy securities by borrowing money from a broker. The margin is the
difference between the market value of a stock and the loan a broker makes. Related: security deposit (initial).


The amount added to a lower figure to reach a higher figure, expressed as a percentage of the higher figure, e.g. the margin that profit represents as a percentage of selling price.

Margin account (Stocks)

A leverageable account in which stocks can be purchased for a combination of
cash and a loan. The loan in the margin account is collateralized by the stock and, if the value of the stock
drops sufficiently, the owner will be asked to either put in more cash, or sell a portion of the stock. margin
rules are federally regulated, but margin requirements and interest may vary among broker/dealers.

Margin call

A demand for additional funds because of adverse price movement. Maintenance margin
requirement, security deposit maintenance
margin of safety With respect to working capital management, the difference between 1) the amount of longterm
financing, and 2) the sum of fixed assets and the permanent component of current assets.

Margin of safety

A measure of the difference between the anticipated and breakeven levels of activity.

margin of safety

the excess of the budgeted or actual sales
of a company over its breakeven point; it can be calculated
in units or dollars or as a percentage; it is equal to
(1 - degree of operating leverage)

Margin requirement (Options)

The amount of cash an uncovered (naked) option writer is required to
deposit and maintain to cover his daily position valuation and reasonably foreseeable intra-day price changes.

Margin Tax Rate

The tax rate applicable to the last unit of income.



Marginal cost

The cost of producing one extra unit.

Marginal cost

The incremental change in the unit cost of a product as a result of a
change in the volume of its production.

Marginal Propensity to Consume

Fraction of an increase in disposable income that is spent on consumption.

Marginal Propensity to Import

Fraction of an increase in disposable income that is spent on imports.

Marginal Propensity to Save

Fraction of an increase in disposable income that is saved.

Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.

marginal tax rate

Additional taxes owed per dollar of additional income.

Marginal Tax Rate

Percent of an increase in income paid in tax.

National Income and Product Accounts

The national accounting system that records economic activity such as GDP and related measures.

Net Domestic Product

GDP minus depreciation.

Net National Product

GNP minus depreciation.

Net operating margin

The ratio of net operating income to net sales.

Net profit margin

Net income divided by sales; the amount of each sales dollar left over after all expenses
have been paid.

Non-production overhead

A general term referring to period costs, such as selling, administration and financial expenses.

Operating profit margin

The ratio of operating margin to net sales.

Original margin

The margin needed to cover a specific new position. Related: margin, security deposit (initial)

Process flow production

A production configuration in which products are continually
manufactured with minimal pauses or queuing.

process productivity

the total units produced during a period
using value-added processing time


Any item intended for sale.

product complexity

an assessment about the number of components in a product

Product cost

The cost of goods or services produced.

product cost

This is a key factor in the profit model of a business. product
cost is the same as purchase cost for a retailer or wholesaler (distributor).
A manufacturer has to accumulate three different types of production
costs to determine product cost: direct materials, direct labor, and
manufacturing overhead. The cost of products (goods) sold is deducted
from sales revenue to determine gross margin (also called gross profit),
which is the first profit line reported in an external income statement
and in an internal profit report to managers.

product cost

a cost associated with making or acquiring inventory

Product cost

The total of all costs assigned to a product, typically including direct
labor, materials (with normal spoilage included), and overhead.

Product cycle

The time it takes to bring new and/or improved products to market.

product life cycle

a model depicting the stages through
which a product class (not necessarily each product) passes

product line margin

see segment margin

Product market

A business’s investment in technology, people and materials in order to make, buy and sell products or services to customers.

product- (or process-) level cost

a cost that is caused by the development, production, or acquisition of specific products or services

Product risk

A type of mortgage-pipeline risk that occurs when a lender has an unusual loan in production or
inventory but does not have a sale commitment at a prearranged price.

Product/service mix

See sales mix.

product variety

the number of different types of products
produced (or services rendered) by a firm

Production-flow commitment

An agreement by the loan purchaser to allow the monthly loan quota to be
delivered in batches.

Production overhead

A general term referring to indirect costs.

Production payment financing

A method of nonrecourse asset-based financing in which a specified
percentage of revenue realized from the sale of the project's output is used to pay debt service.

Production yield variance

The difference between the actual and budgeted proportions
of product resulting from a production process, multiplied by the standard unit cost.

productive capacity

the number of total units that could be
produced during a period based on available equipment time
productive processing time the proportion of total time that
is value-added time; also known as manufacturing cycle


Output per unit of input, usually measured as output per hour of labor.

Profit margin

Indicator of profitability. The ratio of earnings available to stockholders to net sales.
Determined by dividing net income by revenue for the same 12-month period. Result is shown as a

profit margin

the ratio of income to sales

Profit Margin Ratio

A measure of how much profit is earned on each dollar of sales. It
is calculated by dividing the net income available for distribution to
shareholders by the total sales generated during the period.

Sales Revenue Revenue recognized from the sales of products as opposed to the provision of


segment margin

the excess of revenues over direct variable expenses and avoidable fixed expenses for a particular segment

Self-Employment Contributions Act (SECA)

A federal Act requiring self-employed business owners to pay the same total tax rates for Social Security and
Medicare taxes that are split between employees and employers under the Federal Insurance contributions Act.

Throughput contribution

Sales revenue less the cost of materials.

total contribution margin

see contribution margin

unit margin

The profit per unit sold of a product after deducting product
cost and variable expenses of selling the product from the sales price of
the product. Unit margin equals profit before fixed operating expenses
are considered and before interest and income tax are deducted. Unit
margin is one of the key variables in a profit model for decision-making


A depreciation method that relates a machine’s depreciation to the number of units it makes each
accounting period. The method requires that someone record the machine’s output each year.

Variation margin

An additional required deposit to bring an investor's equity account up to the initial margin
level when the balance falls below the maintenance margin requirement.

profit module

This concept refers to a separate source of revenue and
profit within a business organization, which should be identified for
management analysis and control. A profit module may focus on one
product or a cluster of products. Profit in this context is not the final, bottom-
line net income of the business as a whole. Rather, other measures
of profit are used for management analysis and decision-making purposes—
such as gross margin, contribution margin, or operating profit
(earnings before interest and income tax).







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