What constitutes contribution margin per unit?

Contribution margin per unit refers to the amount of revenue that exceeds fixed and variable costs associated with producing a product. It provides insight into how much each unit sold contributes to covering fixed costs and generating profit.

The correct choice is based on the definition of contribution margin, which is calculated by subtracting variable costs from the sales price per unit. This calculation indicates how much of the revenue from each unit sold is available to cover fixed costs and contribute to profit.

Understanding this concept is crucial for businesses, as it helps in making informed decisions regarding pricing strategies, production levels, and profitability analysis. It allows businesses to identify how many units they need to sell to cover their fixed costs before they start generating profit.

In contrast, the other options do not accurately represent the contribution margin calculation, as they involve incorrect combinations or misunderstandings of costs. For instance, fixed costs should not be subtracted directly from the sales price in this context, and adding or incorrectly computing costs leads to an inaccurate assessment of contribution margin.