In cost-volume-profit analysis, what is the formula for contribution per unit?

In cost-volume-profit analysis, what is the formula for contribution per unit?

• A. Fixed costs per unit plus variable costs per unit.
• B. Selling price per unit minus fixed cost per unit.
• C. Selling price per unit minus variable cost per unit.
• D. Total sales minus total fixed costs.

Answer: (C)

Contribution per unit shows how much each unit adds to covering fixed costs and providing profit. It’s calculated by subtracting the variable cost per unit from the selling price per unit. Fixed costs aren’t subtracted per unit; they are dealt with in total, once the overall contribution from all units is known. So the per-unit contribution equals selling price per unit minus variable cost per unit, and total contribution is this amount times the quantity sold. The other options mix in fixed costs inappropriately or ignore variable costs, which would not reflect how much each unit actually contributes.

Contribution per unit shows how much each unit adds to covering fixed costs and providing profit. It’s calculated by subtracting the variable cost per unit from the selling price per unit. Fixed costs aren’t subtracted per unit; they are dealt with in total, once the overall contribution from all units is known. So the per-unit contribution equals selling price per unit minus variable cost per unit, and total contribution is this amount times the quantity sold. The other options mix in fixed costs inappropriately or ignore variable costs, which would not reflect how much each unit actually contributes.