Contribution is defined as what?

Contribution is defined as what?

• A. Revenue minus variable costs
• B. Revenue minus fixed costs
• C. Total costs minus variable costs
• D. Profit before tax

Answer: (A)

Contribution is the amount that sales revenue leaves after deducting variable costs; it’s what goes toward covering fixed costs and, once those are covered, toward profit. Since variable costs change with output, subtracting them from revenue isolates the portion that can be used to pay fixed costs and contribute to profit. Why this fits: Revenue minus variable costs directly measures what is available to cover fixed costs. After fixed costs are covered, any remaining contribution adds to profit. Why the other options don’t fit: Revenue minus fixed costs would already account for fixed costs, yielding profit after fixed costs rather than the amount available to cover them. Total costs minus variable costs equals fixed costs, not contribution. Profit before tax equals revenue minus all costs (variable plus fixed), not just variable costs.

Contribution is the amount that sales revenue leaves after deducting variable costs; it’s what goes toward covering fixed costs and, once those are covered, toward profit. Since variable costs change with output, subtracting them from revenue isolates the portion that can be used to pay fixed costs and contribute to profit.

Why this fits: Revenue minus variable costs directly measures what is available to cover fixed costs. After fixed costs are covered, any remaining contribution adds to profit.

Why the other options don’t fit: Revenue minus fixed costs would already account for fixed costs, yielding profit after fixed costs rather than the amount available to cover them. Total costs minus variable costs equals fixed costs, not contribution. Profit before tax equals revenue minus all costs (variable plus fixed), not just variable costs.