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Chart · Pricing & Margin

Retail Price Worked Example

Walk through a hypothetical retail price, a sale discount and the resulting contribution, keeping product cost, fees and fixed overhead distinct.

By PriceAndProfit Editorial Updated

A seller plans 100 units for one period. The product cost is $24 per unit and other variable selling costs are $6. The illustration holds those costs unchanged when a 10% discount reduces the $50 price to $45. Fixed overhead remains $1,000. This is a controlled comparison, not a prediction that demand stays unchanged.

Contribution = sale revenue − product cost − variable selling cost; operating profit = total contribution − fixed cost
Hypothetical worked values; no market or statutory rates
StepCalculationResult
Full-price revenue 100 units × $50 $5,000
Sale revenue at 10% off 100 × $45 $4,500
Product cost 100 × $24 $2,400
Variable selling cost 100 × $6 $600
Sale contribution $4,500 − $2,400 − $600 $1,500
Fixed period cost Separate overhead pool $1,000
Sale operating profit $1,500 − $1,000 $500
Full-price operating profit $5,000 − $2,400 − $600 − $1,000 $1,000

How to read and reuse this example

The discount removes $500 of revenue and $500 of operating profit. The remaining $15 contribution per unit must cover overhead. To retain the original $2,000 total contribution at the sale price, the seller needs 2,000/15 = 133.3333 units, or 134 whole units. At that volume, operating profit is $1,010 under the same fixed-cost assumption.

Boundaries and exceptions

The sale margin cannot be described without naming its boundary: gross margin uses product cost, contribution margin also subtracts the variable selling cost, and operating margin subtracts fixed overhead. The table has no tax, financing, refund or demand assumptions. Replace the variable selling cost if the promotion changes fees or delivery expense.

Method reference: OpenStax: Break-Even Points in Units and Dollars. Checked October 22, 2026. Contribution and cost-volume-profit relationships; examples are independently constructed.

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