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Contribution
the monetary (or percentage) difference between revenues realized and the variable costs incurred in the production and distribution of one or more units of a product.
Implications
The portion of revenue from sales that exceeds variable costs, contributing to covering fixed costs and generating profit, often used in pricing and financial analysis.
Example
Example: A bakery calculates the contribution of each product line to determine which items generate the most profit after covering their variable costs.
Related Terms
Different from profit, which is the overall surplus after all costs, contribution specifically refers to the margin available to cover fixed costs and contribute to profitability.
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