Which statement is true about contribution?

Which statement is true about contribution?

• A. Contribution equals revenue minus fixed costs
• B. Contribution equals revenue minus total costs
• C. Contribution equals revenue minus variable costs
• D. Contribution equals variable costs minus revenue

Answer: (C)

The core idea is that contribution shows how much revenue is left after paying the variable costs to contribute toward fixed costs and profit. So, contribution is revenue minus variable costs. This amount is what remains to cover fixed costs, and any surplus becomes profit once fixed costs are covered. For example, if revenue is 1,000 and variable costs are 600, the contribution is 400. The fixed costs can then be paid from that 400, and any leftover is profit. The other statements mix up the roles of costs: subtracting fixed costs from revenue would give profit after fixed costs, not contribution; subtracting total costs would give profit; subtracting revenue from variable costs would be the negative of contribution and isn’t the correct measure.

The core idea is that contribution shows how much revenue is left after paying the variable costs to contribute toward fixed costs and profit. So, contribution is revenue minus variable costs. This amount is what remains to cover fixed costs, and any surplus becomes profit once fixed costs are covered. For example, if revenue is 1,000 and variable costs are 600, the contribution is 400. The fixed costs can then be paid from that 400, and any leftover is profit.

The other statements mix up the roles of costs: subtracting fixed costs from revenue would give profit after fixed costs, not contribution; subtracting total costs would give profit; subtracting revenue from variable costs would be the negative of contribution and isn’t the correct measure.