Contribution
How much each unit sold contributes towards covering fixed costs (and then profit).
Formula
Contribution per Unit = Selling Price − Variable Cost per Unit
Real World
If Nike sells a pair of trainers for £120 and the variable cost (materials, labour) is £45, each pair contributes £75 towards covering Nike's fixed costs such as factory leases and head-office salaries.
Exam Focus
Never subtract fixed costs when calculating contribution per unit — that is a common error that loses marks immediately.
How well did you know this?