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Meaning of contribution

 

 

 

Contribution

 

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Business glossary

 

Meaning of term contribution :

 

The contribution is the difference between the price charged and the variable costs of production of the good. It is in other words the amount that each unit of the good 'contributes' to paying the fixed costs or overheads of the firm. 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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Source : http://business-tes.wikispaces.com/file/view/Glossary.doc

 

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