1. Contribution per unit= Selling price – Direct Cost per unit
This is the amount a product contributes towards paying for the Fixed Costs a firm produces.
Contribution per unit= Selling price – Direct Cost per unit
There are 2 ways to calculate total contribution:
Method 1: Contribution per unit x No. of units sold
Method 2: Total Sales Revenue – Total Direct Costs
Example 1: Price(£) – Direct costs p.u. = Cont. p.u. X Sales = Total Cont.
Product A = x =
Product B = x =
Product C = x =
Example 2: Sales rev (PxQ) - Direct costs = Total Cont.
Product A 15 x 11 (= 165) x 7 (= 105) =
Product B 10 x 23 (=230) x 12 (= 120) =
Product C 15 x 7 (=105) x 5 (=75) =
200
£200m is the contribution towards Fixed Costs and profit.
To make a profit, total contribution must cover all FC/indirect costs. What remains, is profit.