5.5.1—Contribution

Contribution per unit is selling price minus variable cost per unit; total contribution pays fixed costs before profit.

A higher contribution can come from price or lower variable cost, but demand may change. Contribution is useful for short-run decisions when fixed costs are unchanged.

Calculate price−variable cost, multiply by volume, then check whether the decision changes fixed costs or demand.

A $10 meal with$6 variable cost contributes $4; 2,000 meals contribute$8,000 toward fixed costs.

Contribution is not profit until fixed costs are covered.