Does decreasing the sales price increase the contribution margin?

No.

Contribution Margin (CM) is the difference between the Sale Price and the Cost Of Goods Sold (COGS).

Cost of Goods Sold = Cost of parts, materials, labor to produce the item sold.

[This is also called Direct Cost.]

So, we can write a simple equation:

Contribution Margin = Sale Price - COGS.

If Sale Price goes down and COGS stays same, then Contribution Margin goes down.

-- 25 August, 2008