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The following spreadsheet shows the calculation of a company’s profit.
A B
1 $
2 Sales revenue 20000
3 Variable production costs 5000
4 Fixed production costs 3000
5 Gross Profit 12000
6 Variable selling costs 1000
7 Fixed selling costs 500
8 Profit 10500
Which formula would calculate contribution?
Ans) B8+ B7+B4
Why is sales revenue less variable production costs it’s not an answer? I’m confused about this question.The contribution is indeed the revenue less the variable costs and so B2 – B3 – B6 would be a correct choice is it had been one of the choices available.
However the contribution is also equal to the profit before any fixed costs, and so B8 + B7 + B4 is also a correct answer.
(Try the arithmetic for both and you will find that they both give the same result for the contribution).
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