Contribution: what each sale adds
Contribution is selling price less variable cost. See how it pays the fixed costs first, and how what is left is profit.
Task 1Contribution from one candle3 questions
Larkfield Candles makes one product, a scented candle in a glass jar. Each candle sells for £15.
- Variable cost
- a cost that rises with every unit made, such as wax
- Fixed cost
- a cost that stays the same whatever the output, such as rent
- Contribution
- selling price less variable cost
Marginal costing counts only the variable costs as the cost of a unit. Fixed costs are treated as a cost of the month, not of the candle.
| Cost | For each candle |
|---|---|
| Wax, wick and jar | 3.50 |
| Labour, paid for each candle made | 2.00 |
| Variable overheads | 0.50 |
Task 2From contribution to profit4 questions