Contribution is defined as:

• A. Selling price less all fixed costs.
• B. Selling price less all variable costs used for short-term decision making.
• C. Net profit after deducting fixed overheads.
• D. Contribution per unit times quantity.

Answer: (B)

Contribution is the amount from sales that is left after covering the variable costs that change with output. It shows how much revenue is available to absorb fixed costs and, after those are covered, contribute to profit. The standard way to express this for short‑term decisions is selling price minus variable cost per unit. If you multiply that per‑unit contribution by the quantity sold, you get the total contribution. This is why the statement describing selling price less variable costs used for short‑term decision making is the correct definition. Fixed costs aren’t included in the contribution, because they’re what the contribution is meant to help cover. Net profit, after fixed costs, is not contribution; and while total contribution can be arrived at by multiplying per‑unit contribution by quantity, the essential definition focuses on price minus variable costs.