Topic Four, Part 6 - Contribution Flashcards
What is contribution?
The money left after variable costs to pay for fixed costs
How does contribution help a business?
Calculates how many items need to be sold to cover all of a business’ costs
What is contribution per unit?
The profit made on an individual product
What is the formula for contribution per unit?
Selling price per unit – variable cost
What is total contribution?
Shows contribution of all units. Helps to calculate break even point
What is the formula for total contribution using total revenue?
Total revenue – Variable costs
What is profit?
Financial gain, difference between the amount earned and the amount spent
How can contribution be increased?
- Increase selling price
- Reduce variable costs per unit
How do you calculate margin of safety?
Sales level - Break even output / Sales level x 100
What is the formula for total contribution using unit contribution?
Unit contribution x number of goods sold
