The contribution margin helps brands and retailers determine the profitability of selling an additional unit of a product. It is best used when comparing the profitability of one product versus another, and it helps financial managers allocate scarce resources across product lines. It is calculated by subtracting a product’s variable cost from the sales price (contribution margin = product price - variable cost). The product price would be the retail price for a retailer and the wholesale price for a brand.

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