Which term is defined as the difference between sales revenue and total variable costs, used to contribute toward fixed costs?

Which term is defined as the difference between sales revenue and total variable costs, used to contribute toward fixed costs?

• A. Fixed Costs
• B. Revenue
• C. Contribution
• D. Cost Centers

Answer: (C)

The concept here is contribution. It measures how much revenue remains after covering the variable costs of producing goods or services. By subtracting total variable costs from sales revenue, you get the amount that can go toward covering fixed costs and, once those are covered, toward profit. This idea is central to assessing how changes in sales affect the ability to pay fixed costs and generate profit—often used in break-even analysis and cost–volume–profit decisions. For example, if total sales revenue is 100 and total variable costs are 60, the contribution is 40. If fixed costs total 30, the remaining 10 contributes to profit. Choice that describes a constant cost not tied to output would not fit, and revenue on its own or the idea of cost centers does not capture the subtractive relationship between revenue and variable costs to fund fixed costs.

The concept here is contribution. It measures how much revenue remains after covering the variable costs of producing goods or services. By subtracting total variable costs from sales revenue, you get the amount that can go toward covering fixed costs and, once those are covered, toward profit. This idea is central to assessing how changes in sales affect the ability to pay fixed costs and generate profit—often used in break-even analysis and cost–volume–profit decisions.

For example, if total sales revenue is 100 and total variable costs are 60, the contribution is 40. If fixed costs total 30, the remaining 10 contributes to profit. Choice that describes a constant cost not tied to output would not fit, and revenue on its own or the idea of cost centers does not capture the subtractive relationship between revenue and variable costs to fund fixed costs.