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The Contribution Margin Ratio is calculated by taking the Unit Contribution Margin and dividing it by the Unit Selling Price. This ratio reflects the percentage of each sales dollar that contributes to covering fixed costs and generating profit after variable costs have been deducted.

The Unit Contribution Margin itself is determined by subtracting the variable cost per unit from the unit selling price. Thus, when this margin is expressed as a ratio of the selling price, it provides insight into how much of each dollar earned goes toward covering fixed costs and ultimately contributing to profit.

This calculation is crucial for assessing the profitability of products and making informed decisions about pricing strategies, cost management, and financial forecasting. The Contribution Margin Ratio helps managers understand how much sales revenue is available to cover fixed expenses after variable costs have been paid, which is vital in break-even analysis and overall profitability assessments.