It
is calculated using the following formula:
Contribution per unit = selling price 
variable cost
To
find the total contribution is found by multiplying the contribution per unit
by the total quantity sold. The
contribution is first of all used to pay the fixed costs, any contribution
left over is described as profit. We
can therefore calculate profit in another way:
Profit =
contribution 
fixed costs
Contribution
is a useful way of calculating profit when a company has more than one
product. It allows manager to
view how much contribution each of the products is making, hence making
decisions about future product easier.
