Contribution per unit equals

Contribution per unit equals

• A. Selling price per unit minus variable cost per unit
• B. Selling price per unit minus fixed cost per unit
• C. Fixed costs divided by quantity
• D. Total revenue minus total costs

Answer: (A)

The per-unit contribution shows how much each unit sold helps cover fixed costs and contribute to profit after variable costs are paid. It’s found by subtracting the variable cost per unit from the selling price per unit. For example, if you sell a unit for 100 and the variable cost per unit is 60, the contribution per unit is 40. This 40 per unit funds fixed costs and any additional profit once fixed costs are covered. Subtracting fixed costs per unit would not reflect how much each unit adds to covering costs, because fixed costs don’t vary with quantity. Fixed costs divided by quantity gives the fixed cost per unit, not the contribution. Total revenue minus total costs equals profit, not the contribution per unit.

The per-unit contribution shows how much each unit sold helps cover fixed costs and contribute to profit after variable costs are paid. It’s found by subtracting the variable cost per unit from the selling price per unit. For example, if you sell a unit for 100 and the variable cost per unit is 60, the contribution per unit is 40. This 40 per unit funds fixed costs and any additional profit once fixed costs are covered.

Subtracting fixed costs per unit would not reflect how much each unit adds to covering costs, because fixed costs don’t vary with quantity. Fixed costs divided by quantity gives the fixed cost per unit, not the contribution. Total revenue minus total costs equals profit, not the contribution per unit.