Contribution:
Contribution
is the difference between sales value and the marginal cost of sales.
Contribution
towards covering fixed overheads and making profit.
Summary:
If
total contribution exceeds fixed cost, a profit is made.
If total contribution exactly equals fixed costs, no profit and no loss is made.
This is known as the Breakeven Point
If total contribution is less than fixed cost, there will be a
loss.
Advantage of
contribution
The main advantage of contribution is that it allows an easy
calculation of profit if sales increase or decrease from a certain level.
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