Contribution margin – meaning

Contribution margin - meaning meaning of contribution margin

The contribution is the difference between the selling price and variable cost (or marginal cost) is known as `contribution’ or `gross margin’. It may be considered as some sort of fund from out of which all fixed costs are met. The difference between contribution and fixed cost represents either profit or loss, as the case may be.

The contribution is calculated using the following formula:

Contribution = Selling Price – Variable Cost= Fixed Cost + Profit Or – Loss read more

What is variable costs?

Variable cost is the cost which, in aggregate, tend to vary in direct proportion to changes in volume of output or turnover. =&0=&

  • Linear variable cost or engineered cost. this is one in which relationship between variable cost and output can be shown as straight line in the graph.
  • Non linear or curve linear variable cost. this occur when the relationship between variable cost and output can be shown as curved line on the graph.
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    Nine (9) benefits of marginal costing.

    Nine (9) benefits of marginal costing.

    Marginal or direct costing is the accounting system in which variable costs are charged to cost units and fixed costs of the period are written off in full against the aggregate contribution.

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    Six (6) disadvantages of using marginal costing.

    Revision question on preparation of cash flow statements.

    Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution. read more