How to Calculate Margin Throughput

Margin Throughput is an accounting term similar to Contribution Margin used to calculate the amount of profits obtained across the production cycle, focusing upon variable costs and revenue as opposed to fixed costs, which change so often that any fixed value is largely arbitrary. This requires only a simple calculation to determine, so get your calculator ready.

Instructions

1. Write down the variable cost for the product whose margin throughput you are considering. Variable cost is the cost of either materials, overhead, or labor that is altered depending upon the number of units created.

2. Write down the variable revenue for the product. Variable revenue is the amount of income you are making for each purchase, depending upon the number of units sold.

3. Subtract variable cost from variable revenue to determine the contribution margin, or margin throughput, for your product. This is the amount of profit you will realize on each sale of the good or service.

References

• Financial Terms: Throughput Contribution
• Management and Accounting Web: Improve internal reporting with ABC and TOC
• Investor Words: Variable Cost