The correct answer is: A. Sales – Variable cost.
Contribution is the difference between sales and variable costs. It is the amount of revenue that is available to cover fixed costs and contribute to profit.
Sales are the total amount of revenue generated by a company from the sale of its products or services. Variable costs are the costs that vary directly with the volume of production or sales. These costs include the cost of raw materials, direct labor, and variable overhead. Fixed costs are the costs that do not vary with the volume of production or sales. These costs include rent, depreciation, and insurance.
Contribution is an important concept in marginal costing. Marginal costing is a method of cost accounting that focuses on the costs that vary with the volume of production or sales. This method is used to calculate the contribution margin, which is the difference between sales and variable costs. The contribution margin is used to cover fixed costs and contribute to profit.
Here is a brief explanation of each option:
- Option A: Sales – Variable cost. This is the correct answer. Contribution is the difference between sales and variable costs.
- Option B: Sales – Fixed cost. This is not the correct answer. Contribution is the difference between sales and variable costs, not fixed costs.
- Option C: Sales – Profit. This is not the correct answer. Contribution is the difference between sales and variable costs, not profit.
- Option D: Sales – Variable Cost + Fixed cost. This is not the correct answer. Contribution is the difference between sales and variable costs, not variable costs plus fixed costs.