# Contribution
Contribution is the amount that remains from sales after recovering variable costs. It is the amount available to first cover fixed costs and then generate profit.
## Formulas
Contribution can be computed in any of the following equivalent ways:
1. Per unit (using per-unit figures):
$$\text{Contribution per unit} = \text{Selling Price per unit} - \text{Variable Cost per unit}$$
2. Total (using totals):
$$\text{Total Contribution} = \text{Total Sales} - \text{Total Variable Cost}$$
3. From Fixed Cost and Profit (working backwards):
$$\text{Contribution} = \text{Total Fixed Cost} + \text{Total Profit}$$
(If there is a loss, Contribution = Fixed Cost − Loss.)
## Why Contribution is Important
- It is the building block for break-even analysis, P/V ratio, margin of safety, and almost every marginal costing decision.
- A positive contribution means a product is at least covering its variable cost — so it is worth producing in the short run even if total fixed cost is not yet covered.
- A negative contribution means the product is destroying value with every unit — production should normally be stopped (subject to long-term considerations).