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Meaning of contribution pricing

 

 

 

Contribution pricing

 

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Business glossary

 

Meaning of term contribution pricing :

 

Contribution pricing is where the price charged is based on the variable costs of production. A price is set that is greater than the variable costs, so that a contribution is made towards fixed costs. For example, if the variable costs are £4 per unit and the firms sells the good for £6, then each unit sold will make a 'contribution' to fixed costs of £2. If total fixed costs are £1,000, then the firm will need to make 500 units to break-even.

 

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Meaning of term contribution pricing

 

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