What is the per-unit measure that is calculated as Price minus Average Variable Cost?

What is the per-unit measure that is calculated as Price minus Average Variable Cost?

• A. Average Cost
• B. Revenue per Unit
• C. Fixed Cost per Unit
• D. Contribution per Unit

Answer: (D)

This question tests the idea of how much each sold unit adds to covering fixed costs and contributing to profit. The per-unit measure calculated as price minus average variable cost is the contribution per unit. It shows how much revenue from a single unit remains after variable costs have been paid, and that remainder goes toward fixed costs and profit. For example, if a unit sells for $20 and the average variable cost per unit is $12, the contribution per unit is $8. Those $8 per unit are what help cover fixed costs; once fixed costs are covered, additional contribution turns into profit. This is different from other per-unit measures: revenue per unit is just the selling price, not the leftover after variable costs; average cost per unit includes both fixed and variable costs, not just variable costs; and fixed cost per unit divides fixed costs by quantity, which doesn’t reflect the cost of the unit's variable costs.

This question tests the idea of how much each sold unit adds to covering fixed costs and contributing to profit. The per-unit measure calculated as price minus average variable cost is the contribution per unit. It shows how much revenue from a single unit remains after variable costs have been paid, and that remainder goes toward fixed costs and profit.

For example, if a unit sells for $20 and the average variable cost per unit is $12, the contribution per unit is $8. Those $8 per unit are what help cover fixed costs; once fixed costs are covered, additional contribution turns into profit. This is different from other per-unit measures: revenue per unit is just the selling price, not the leftover after variable costs; average cost per unit includes both fixed and variable costs, not just variable costs; and fixed cost per unit divides fixed costs by quantity, which doesn’t reflect the cost of the unit's variable costs.