Contribution Margin Formula

Steps:

• Identify the key components: sales revenue and costs divided into variable (change with output) and fixed (constant).
• Recall that contribution measures profit before fixed costs, focusing on covering variables first.
• Apply the formula: subtract only variable costs from sales to find contribution per unit or total.
• Verify against total profit, which subtracts both cost types.

Why B is correct:

• Contribution is defined as sales revenue minus variable costs, showing how much covers fixed costs and profit.

Why the others are wrong:

• A: This is gross profit, subtracting cost of goods sold (includes fixed manufacturing costs).
• C: Subtracting only fixed costs ignores variables, not standard for contribution.
• D: This is total profit or net income, subtracting all costs.

Final answer: B