Contribution with several products
With several products, each contribution is worked out and then added up. What counts is total contribution per product, not the unit margin.
Worked example
A firm makes three products. Total fixed costs are £112,000.00. Work out the total contribution and the operating result.
| Product | Price | Variable cost/unit | Quantity |
|---|---|---|---|
| A | £25.00 | £9.50 | 1,200 |
| B | £45.50 | £17.50 | 1,500 |
| C | £132.50 | £67.00 | 2,400 |
Worked solution
- 1.A: (£25.00 − £9.50) × 1,200 = £18,600.00
- 2.B: (£45.50 − £17.50) × 1,500 = £42,000.00
- 3.C: (£132.50 − £67.00) × 2,400 = £157,200.00
- 4.Total contribution = £217,800.00; operating result = £217,800.00 − £112,000.00 = £105,800.00
- 5.C contributes most (highest total contribution, not necessarily the highest per unit).
Typical mistake: Judging the contribution by the unit margin alone; what counts is margin times quantity.
Your turn
Three problems of exactly this type, each time with new numbers. Amounts with or without thousands separators.
Task
A firm makes three products. Total fixed costs are £190,000.00. Work out the total contribution and the operating result.
| Product | Price | Variable cost/unit | Quantity |
|---|---|---|---|
| A | £38.00 | £14.00 | 2,100 |
| B | £92.50 | £64.50 | 2,700 |
| C | £91.00 | £48.50 | 2,800 |
Total contribution in £
Operating result in £ (loss with a minus)
Which product contributes most to covering fixed costs?
Amounts like 12,500 or 12500.50; percentages as a number (12.5). Round to the penny or 2 decimal places.
Formulas for this topic
- Unit contribution = price − variable cost per unit
- Total contribution = unit contribution × quantity
- Operating result = total contribution − fixed costs
- Several products: add the contributions, then deduct fixed costs once.
Typical mistake: Judging the contribution by the unit margin alone; what counts is margin times quantity.
Frequently asked questions
What is the typical mistake in "Contribution with several products"?
Judging the contribution by the unit margin alone; what counts is margin times quantity.
What does a positive contribution mean?
Each unit covers its variable costs and adds something towards fixed costs. Whether there is a profit depends on total contribution exceeding fixed costs.