MARGINAL COSTING
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What is marginal costing?
Marginal costing is a costing technique where only variable costs are charged to products or services, while fixed costs are treated as period costs and written off to the profit and loss account in full.
What is the formula for calculating contribution per unit in marginal costing?
Selling price per unit minus variable cost per unit.
How is marginal cost defined in management accounting?
Marginal cost is the additional cost incurred in producing one extra unit of output; it comprises direct materials, direct labour, direct expenses, and variable overheads.
What does the term 'marginal cost' specifically refer to in cost accounting?
Additional cost incurred to produce one more unit of output.
What is the contribution formula in marginal costing?
Contribution = Sales Revenue – Variable (Marginal) Cost. It represents the amount available to cover fixed costs and generate profit.
Under marginal costing, which costs are excluded from product cost?
Fixed costs are excluded from product cost.
How is profit calculated under marginal costing?
Profit = Contribution – Fixed Costs. Once total contribution exceeds fixed costs, the surplus is the net profit for the period.
How is the Break-Even Point (BEP) calculated using the contribution approach?
BEP = Fixed Costs divided by Contribution per unit.
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