• The difference between selling price and variable costs.
• Can also be called “contribution towards fixed costs and profits”
• This is because contribution is available to pay the fixed costs of a business and once the fixed costs are covered the contribution becomes the profit of the entity
• Often seen in profit statement under marginal costing method.

Contributing accounting:

• focuses on identifying fixed and variable costs and calculates the total contribution generated by a business. The total fixed costs are then deducted to give the net profit.

See below for the difference between Contribution and Net profit

Income Statement of Company XYZ

Contribution costing:-

• Values a product using only the variable costs incurred in its production

Contribution pricing:

• Sets the selling price of a product at a value below total unit cost but one that will cover variable costs.
• Used in short-term decision-making so that the pricing is able to give a positive contribution that is able to cover variable cost to contribute towards fixed costs and profits

Contribution Graph:

• An alternative presentation of a break-even chart. Sales revenue is graphed from the origin as in a traditional break-even chart. Variable costs are also graphed from the origin and then fixed costs are built onto the variable costs.