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Hi could someone please explain the difference between contribution & profit?
Thanks
(If you want me to answer then post here – if you want anyone to answer then post on the general forum)
Contribution is sales less variable costs (or profit before fixed costs – they are two ways of saying the same thing).
The distinction is critical throughout Paper F5, and I really do suggest that you watch my lectures (in the same order as the chapters) where not only do I make the difference clear, but also the relevance (which is so important – not just for the calculations but for the 50% of the papers that is discussion).
Contribution – It is a voluntary gift such as money, service or ideas made to some worthwhile cause. The calculation of contribution is Net Sales minus the variable product costs and the variable period expenses.
Profit – The excess of entire amount of income before any deductions over outlays in a given period of time. The calculation of profit is Sales minus Cost of Goods Sold.Victor: this was a question about F5. To refer to the other meaning of contribution as being a voluntary gift is ridiculous – it has nothing to do with F5 whatsoever.
Also, profit is not simply sales less cost of goods sold – that is gross profit. We also need to subtract all expenses of running the business.This forum if for the tutor (which is me!) to answer questions. By all means you can answer questions also, but in the general F5 forum, not in this one.
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