Marginal Costing

According to CIMA, “Marginal costing is the system in which variable costs are charged to cost unit and fixed costs of the period are written off in full against the aggregate contribution”.

Marginal costing is defined as the ascertainment of marginal cost and its effect on the profit, by changes in volume or type of output by differentiating between fixed costs and variable costs.

 

Contribution Margin

Contribution margin or contribution is the difference between the sales and the marginal cost of sales. It contributes towards the fixed cost and profit elements. Let’s say selling price per unit is $15, variable cost per unit is $10 and fixed cost is $150,000. Here the contribution per unit will …

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