What do businesses need to cover in order to make a profit?
- its costs
What can help the business decide whether a product is making a profit, that is contributing towards a profit?
- Contribution analysis
What is contribution?
- the revenue received from selling a product minus the variable costs of producing that good
When is there a contribution to the fixed costs?
- When the revenue is greater than the variable costs
What happens if the fixed costs have already been paid for?
- any contribution will be making a profit
What is contribution costing sometimes called?
Marginal costing
What is the contribution per unit (cpu)?
It is the contribution of each unit of production to the overheads
CPU= price- variable costs
What is total contribution?
How much in total is contributing to the fixed costs
Total contribution= cpu x sales
What is profit?
The revenue left over after paying the fixed costs
Profit= total contribution - fixed costs
How can the contribution method be used?
- to calculate how much an individual product contributes to the fixed costs or profits
- and to compare how more than one product within a business contributes to the fixed costs of that business
What does the contribution method allow a business to assess?
- the level of profit for each product it makes
- it allows the business to see which products are contributing the most to cover its fixed costs
What is the advantage of contribution costing?
- fixed costs don’t have to be allocated at all
Special orders
- if the business were to be offered an additional or special order, the calculation of contribution is very helpful
What will additional contribution add to?
Profit of the business because fixed costs have already been covered
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Chapter 42- Communication38
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Business Studies Equations32
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Chapter 42- Communication15
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Chapter 1- Enterprise and business functions28
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Chapter 2- Business sectors and types of business42
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Chapter 3- Franchises and co-operatives18
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Chapter 4- Business size, growth and external growth41
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Chapter 41- Organisation43
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Chapter 44- Recruitment, selection and training33
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Chapter 50- Marketing within a business environment34
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Chapter 51- Identifying customer needs: Market research28
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Chapter 52- Identifying customer needs: Market research analysis37
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Chapter 53- customers and consumers and anticipating consumers needs30
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Chapter 54 – product36
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Chapter 55- price34
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Chapter 56- place11
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Chapter 57 – promotion29
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Chapter 5- Stakeholders17
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Chapter 6- Different stakeholder objectives and mission statements26
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Chapter 7- Strategy and implementation50
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Chapter 8- Business plans and contingency crisis management55
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Chapter 9- Risk and uncertainty and opportunity cost14
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Chapter 10- forecasting20
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Chapter 11- decision making and conflicts in decision making17
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Chapter 12- decision trees10
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Chapter 23- accounting and finance objectives and strategy7
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Chapter 24- sources of finance33
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Chapter 25- accounting concepts17
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Chapter 26- costs, revenue and profit40
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Chapter 27- contribution14
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Chapter 28- break-even analysis20
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Chapter 29- investment appraisal28
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Chapter 30- budgets and variance18
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Chapter 32- index numbers6
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Chapter 35- depreciation16
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Chapter 37- gearing ratios8
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Chapter 36- introduction to ratio analysis and liquidity ratios15
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Chapter 38- efficiency ratios12
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Chapter 39- profitability ratios12
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Chapter 40- shareholder ratios12
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Chapter 31- cash flow and working capital31
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Chapter 33- income statements26
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Chapter 34- statement of financial position40
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Chapter 43- workforce planning, human resource objectives and strategy29
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Chapter 45- appraisal and workforce performance34
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Chapter 46- functions of management and leadership43
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Chapter 47- motivation71
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Chapter 48- employer-employee relations: trade unions and consultation39
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Chapter 49- employer/employee relations: employment law45
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Chapter 13- the market including physical and non physical markets24
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Chapter 14- demand and supply and market forces6
