Good Essay About Contribution Analysis
Explain what is contribution analysis with examples
The contribution analysis is an approach that provides the researchers and managers a step-by-step report about the contribution their project is making or has made to the outcome of the project. The significance of this approach is that it eliminates a certain level of uncertainty about the contribution the factors have made and the role played by these significant factors as internal and external factors. The contribution analysis helps in identification of the overhead costs that are associated with the production project. Hence, the contribution analysis helps a company to identify and account for all the direct, variable and fixed costs and then minus out the amount gained from the revenues. The balance is termed as the cost that contributes to the production (Mayne, 2001).
The contribution analysis can be calculated using the Activity Based Costing (ABC). For example, a large organization may want to use contribution analysis to help in determining the price of the product or how to earn more profit from a particular project.The main aim of the contribution analysis is to lead the company’s pricing decision on contribution margin (Mayne, 2008).
Contribution Margin Per Unit x Units Sold = Product’s Contribution to Profit
This approach is of utmost importance in the situation where the project, where the contribution analysis is applied, is not on trial, but where the funding is appropriately done, and the basis for the project is clear. The main concept of contribution analysis is that the cost that is directly attributed to the product will be allocated, and this only cost will be deducted from the revenue. In order to further improvise on this cost concept, some companies add to their marketing costs, promotions and advertisement as their direct costs (Mayne, 2008).
Mayne J (2001) Addressing attribution through contribution analysis: using performance measures sensibly. Canadian Journal of Programme Evaluation, 16; p.10.
Mayne, J. (2008) Contribution Analysis: An approach to exploring cause and effect, ILAC methodological brief http://www.cgiarilac.org/files/ILAC_Brief16_Contribution_Analysis_0.pdf