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Accounting: Fixed costs, Variable costs & Contribution
 

Contribution, both per unit or in aggregate, is an important variable which arises from a variable cost classification system. Because contribution provides a summary measure that encompasses the elements that vary in direct relation to output volume it provides a valuable simplification that is used in a number of economic modelling approaches used by management accountants.

Absorption Cost Statement

Sales Revenue
xxxx
Direct Materials
xxxx
Direct Labour
xxxx
Manufacturing Overhead
xxxx
Manufacturing Costs
(xxxx)
Non-manufacturing Costs
(xxxx)
Profit
xxxx
 

 

Variable Cost Statement

Sales Revenue
xxxx
Direct Materials
xxxx
Direct Labour
xxxx
Variable Overhead
xxxx
Variable Costs
(xxxx)
Contribution
xxxx
Fixed Overhead
(xxxx)
Profit  
xxxx

(Note: The Variable Cost Statement is sometimes also referred to as a Marginal or a Direct Costing Statement)