With reference to the theory of contribution, which of the following statement is/are correct? 1. Contribution is the excess of sales over variable costs 2. Contribution is the excess of sales over total costs Select the correct answer:

The correct answer is: Only 1.

Contribution is the excess of sales over variable costs. It is the amount of revenue that is available to cover fixed costs and contribute to profit. Contribution can be calculated by the following formula:

Contribution = Sales – Variable costs

Contribution is an important concept in cost-volume-profit analysis. It can be used to calculate break-even point, target profit, and margin of safety.

Option 2 is incorrect because contribution is not the excess of sales over total costs. Total costs include both variable and fixed costs. Therefore, contribution is always less than or equal to total sales.