Contribution is the excess of sales over variable costs and it represents the surplus available to meet the fixed costs. Once the fixed costs have been met any contribution left is profit.
At the break-even point the sales revenue generated covers the total costs and no more.
At the break-even point the contribution is sufficient to meet the fixed costs.
Contribution = Fixed costs
BEP = Fixed Costs
Contribution per Unit
P/V or C/S ratio = Contribution X 100
Sales
The P/V ratio indicates the % of contribution to sales.
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