Increase in contribution equals

Increase in contribution equals

• A. Original contribution minus required contribution
• B. Increase in contribution equals
• C. Total contribution minus fixed costs
• D. Selling price minus variable cost

Answer: (B)

The key idea here is how a change in activity affects the amount available to cover fixed costs and profit, i.e., the contribution. Contribution is the amount left after variable costs are deducted from revenue, and it can be looked at per unit or in total. When activity increases, the relevant measure is the incremental or increase in contribution—the extra amount contributed to fixed costs and profit as a result of the change. In incremental terms, this is often expressed as the change in revenue minus the change in variable costs, or, for a given rise in units with constant contribution per unit, the extra units times the contribution per unit. Among the options, the phrase that best captures this idea of how the value changes is the one that states “Increase in contribution equals.” The other choices describe other financial relationships—such as net profit (total contribution minus fixed costs), per-unit contribution (selling price minus variable cost), or a comparison between original and required contributions—which do not describe the change itself.

The key idea here is how a change in activity affects the amount available to cover fixed costs and profit, i.e., the contribution. Contribution is the amount left after variable costs are deducted from revenue, and it can be looked at per unit or in total. When activity increases, the relevant measure is the incremental or increase in contribution—the extra amount contributed to fixed costs and profit as a result of the change. In incremental terms, this is often expressed as the change in revenue minus the change in variable costs, or, for a given rise in units with constant contribution per unit, the extra units times the contribution per unit.

Among the options, the phrase that best captures this idea of how the value changes is the one that states “Increase in contribution equals.” The other choices describe other financial relationships—such as net profit (total contribution minus fixed costs), per-unit contribution (selling price minus variable cost), or a comparison between original and required contributions—which do not describe the change itself.