Contribution Is The Difference Between The Selling

Task 1:(This provides evidence for outcome 1 - assessment criteria 1.1, 1.2 & 1.3)Explain the statement: "Contribution is the difference between the selling price and the variable costs." Explain the importance of contribution in short term decision making.Contribution is the excess of selling price over variable cost. The contribution is very important for short term decision. Sometimes the situation demands a decision. If the company receives a bulk order for sale price less than the normal selling price. The decision needs to check the contribution. Similarly, if the market price of the product goes down, whether to produce and sale or stop the production, decision will depend on the contribution margin. Cordoba Pic has the selling price of £25 per unit, direct material cost of £10 per unit, direct labour cost £6 per unit & variable overheads of £4 per unit. It has a fixed cost of £16,800. Calculate the breakeven- point in units.Selling price £25 per unitVariable costDirect Material£10 Direct labor£ 6Overhead£ 4 Total£20 per unitContribution per unit£ 5 per unit====Breakeven point= Fixed Costs ÷ Contribution per unit= £16,800 ÷ £ 5= 3,360 unitsIf