Cambridge O Level Business Studies · Syllabus 7115 · Operations Management
Contribution per Unit
What is Contribution per Unit?
Selling price per unit minus variable cost per unit. It is the amount each unit sold contributes towards paying the fixed costs, and towards profit once the fixed costs have been covered. Contribution is the figure that decides break-even output and that settles a stop-or-continue decision.
This definition is part of the Operations Management chapter in Cambridge O Level Business Studies.
Contribution per Unit in context
Production methods, cost behaviour and break-even analysis together decide whether a business can make what customers want at a price the market will support. Job, batch and flow production are not ranked best to worst; volume, variety, customisation, capital and demand stability determine which method fits a given product. Fixed costs stay the same regardless of output, while variable costs rise directly with it, and contribution per unit — price minus variable cost — sets both the break-even output and the margin of safety. Economies of scale then reduce average cost as output grows, while diseconomies of scale raise it once a business becomes too large to coordinate effectively.