Contribution equals:
ASales − Fixed cost
BSales − Total cost
CSales − Variable cost
DSales − Profit
Answer & Solution
Correct answer: C. Sales − Variable cost
1. Contribution measures how much sales contribute towards covering fixed cost and earning profit.
2. By definition: Contribution = Sales − Variable cost.
3. After fixed cost is deducted from contribution, the remainder is profit.
4. Hence the correct identity is Sales − Variable cost.
_Source: ICAI BoS Inter Paper 3, Ch 14 "Marginal Costing", §14.3 ¶2_
Related questions
At the break-even point,A higher contribution to sales ratio implies thatIf the margin of safety is 21.875 per cent of sales, break-even sales are what share of saMargin of safety isFixed cost is 1,50,000 and contribution per unit is 15. Units needed to earn a profit of 2Fixed cost is 1,50,000 and contribution per unit is 15. The break-even point in units isSelling price is 30 per unit and variable cost is 15 per unit. The P/V ratio isContribution is defined as