Where the $2.50 goes: A café pays Lena's Bakery $2.50 for a packet of crackers. The flour, butter, seeds and printed packet cost $0.60, and that money is spent again on every packet baked.
That leaves $1.90. It is tempting to call the $1.90 profit. It is not, yet.
The $0.60 is the packet's variable cost (3.3.1): it is spent again on every packet made. What is left of the price once it is paid is the packet's contribution (contribution per unit).
It has that name because it contributes: first towards paying the fixed costs, and only after them towards profit.
Contribution per unit = selling price per unit − variable cost per unit
One packet of crackers
Selling price: $2.50
What the café pays Lena's Bakery for one packet.
Variable cost per unit: $0.60
Flour, butter, seeds and the printed packet. Bake one more packet and this is spent once more.
Contribution per unit: $1.90
$2.50 − $0.60 = $1.90. The part of the price left over to pay the fixed costs.
A contribution is not a profit: The crackers also have costs that stay the same however many packets are sold: a baker's afternoon, oven time and space in the van, $140 a week (4.5.2). Over a year that is $7,280.
None of that is in the $0.60. It has to be paid out of the $1.90s. Until it is, the crackers have made no profit at all.
In 4.5.2 the fixed costs were shared out over the packets to find a unit cost of $1.00. Contribution does the opposite: it leaves the fixed costs out on purpose, because they do not change when one more packet is sold.
That makes contribution the right figure for a simple question: what does one more packet add? For Lena's Bakery, it adds $1.90 towards the bills.
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In 2025 Lena's Bakery sold 18,000 packets of crackers to the cafés. Each one left $1.90 over its own ingredients. Together they left a great deal more.
Two sizes of the same idea: Contribution per unit is what one packet leaves over: $1.90.
Total contribution is what all the packets sold in a period leave over together: the contribution per unit times the number sold.
| Contribution per unit | Total contribution | |
|---|---|---|
| What it measures | One packet | All the packets sold in a period |
| How to work it out | Selling price − variable cost per unit | Contribution per unit × units sold, or total revenue − total variable costs |
| Lena's crackers, 2025 | $2.50 − $0.60 = $1.90 | 18,000 × $1.90 = $34,200 |
| Sell more packets? | Stays at $1.90 | Grows by $1.90 with every packet |
Two routes to the same total, and the way back
Route 1: per packet, then multiply
18,000 packets × $1.90 = $34,200.
Route 2: from the totals
Total revenue: 18,000 × $2.50 = $45,000. Total variable costs: 18,000 × $0.60 = $10,800. Total contribution = $45,000 − $10,800 = $34,200.
The way back: divide
A table may give only the total. $34,200 ÷ 18,000 packets = $1.90 a packet.
When the flour costs more: Suppose Valley Grain raises its flour price in 2026 and the ingredients for a packet go up from $0.60 to $0.70. The cafés still pay $2.50.
Each packet now leaves $2.50 − $0.70 = $1.80. On the same 18,000 packets, total contribution falls to $32,400, which is $1,800 less.
The reason is in route 2: total contribution is sales revenue minus total variable costs. The revenue stayed at $45,000 and the variable costs rose, so less is left over.
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The first packets of the year: On 1 January the crackers face a year of fixed costs: $7,280 for the baker's afternoons, the oven time and the van space. The first packet sold brings in $1.90 towards it. So does the second.
Every packet pays off a little more of the same bill, $1.90 at a time.
So total contribution goes to the fixed costs first. Whatever is left once they are covered is the profit (3.3.3):
Profit = total contribution − fixed costs
Where the crackers' contribution went in 2025
Total contribution: $34,200
18,000 packets × $1.90.
Fixed costs paid first: $7,280
$140 a week × 52 weeks: the baker's afternoons, the oven time, the van space.
What is left is profit: $26,920
$34,200 − $7,280 = $26,920 profit from the crackers in 2025.
Where break-even comes from: Somewhere along the year there is a number of packets at which total contribution exactly covers the fixed costs. Below it the crackers make a loss; above it, every extra packet adds its whole $1.90 to profit.
That number of packets is called the break-even quantity. It comes straight from contribution: the bigger the contribution on each packet, the fewer packets it takes to cover the fixed costs.
Lena's crackers
- Low fixed costs: $7,280 a year
- A contribution of $1.90 on each packet
- Only a small share of the year's 18,000 packets goes on covering the fixed costs
A large automated cracker factory
- Machines and a big site: very high fixed costs
- Low variable cost, so a large contribution on every packet
- Many packets must be sold before the fixed costs are covered; after that, profit climbs fast
Either way, contribution per unit is the speed at which the fixed costs are paid off, and total contribution is how far the business has got.
How this comes up: Contribution comes up inside a longer data question about a business's costs. Calculate the contribution per unit from a table, for one mark, with no working needed. Or explain how a change in a cost affected total contribution, for two.
The explain question needs no numbers. It needs the reason: total contribution is sales revenue minus total variable costs.
The two-mark pattern
- Say which way it moved. Total contribution fell.
- Say why, from what contribution is. Total contribution is sales revenue minus total variable costs, so higher variable costs leave less of the revenue over.
- Tie it to the case. The ingredients for each packet rose from $0.60 to $0.70, so each packet leaves $1.80 instead of $1.90.
The trap: bringing in the fixed costs: 'Costs went up, so profit fell' answers a different question. Contribution leaves the fixed costs out, so the answer has to be about revenue and variable costs.
A rise in rent or salaries does not change contribution at all. Only the price and the variable costs do.
Explain how the increase in variable costs in 2026 affected the total contribution from Lena's crackers.
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