Contribution analysis

Cost and management accounting.

In cost and management accounting, contribution is Revenue less incremental variable costs.

Contribution analysis seeks to identify contribution per unit of production and total contribution.

When total contribution is maximised, profit will be maximised.

The key insight from contribution analysis is that sunk costs (already committed costs) are not relevant for short term decision making:

'Sunk costs don't count.'

See also

• Break even point
• Contribution
• Fixed cost
• Limiting factor
• Management accounting
• Margin of safety
• Sunk costs
• Variable cost