Contribution

Question 1

Nature and purpose of contribution

Answer 1

Contribution- the amount of money left over from a sale after variable costs have been covered. This means the money can contribute to fixed costs and profit.

Can be used to:
Calculate break-even level of output
Calculate the amount of profit made by a business
Calculate the amount needed to be sold to reach a specific profit target
Help a business to decide what price to charge a product
Help a business to decide which order to accept when faced with a choice

Question 2

Unit contribution formula

Answer 2

Contribution per unit= selling price - variable cost

Question 3

Total contribution formula

Answer 3

Total contribution= total revenue - total variable cost

Question 4

Contribution and break-even formula

Answer 4

Break-even= fixed costs/ contribution

Question 5

Contribution and profit formula

Answer 5

Profit= total contribution - fixed costs

Question 6

Contribution and profit target formula

Answer 6

Output= fixed costs + profit target / contribution