Marginal costing
Marginal costing: is the amount at which any given volume of output by which aggregate cost
change if the volume of output increased or decreased by one unit
Key terms
● Contribution
● PV ratio
● Break even point
● Margin of safet:
Contribution: contribution is the difference between sales and variable cost
Break even point: Break even point is the point of sales at which company makes neither profit
or loss or the point at which company's contribution will equal to its fixed cost
Margin of safety: margin of safety represent the difference between sales at a given activity and
sales at break even point
eg. Sales. - 50,000
Less: variable cost -15,000
= contribution. -35,000
Less: fixed cost. -25,000
=. Profit. -10,000
Contribution = sales - variable cost
PV ratio = contribution ÷ sales ×100
Break even point = fc/PV ratio
(In value)
= fc/ contribution per unit
( in units)
Margin of safety = profit / PV ratio
Marginal costing: is the amount at which any given volume of output by which aggregate cost
change if the volume of output increased or decreased by one unit
Key terms
● Contribution
● PV ratio
● Break even point
● Margin of safet:
Contribution: contribution is the difference between sales and variable cost
Break even point: Break even point is the point of sales at which company makes neither profit
or loss or the point at which company's contribution will equal to its fixed cost
Margin of safety: margin of safety represent the difference between sales at a given activity and
sales at break even point
eg. Sales. - 50,000
Less: variable cost -15,000
= contribution. -35,000
Less: fixed cost. -25,000
=. Profit. -10,000
Contribution = sales - variable cost
PV ratio = contribution ÷ sales ×100
Break even point = fc/PV ratio
(In value)
= fc/ contribution per unit
( in units)
Margin of safety = profit / PV ratio
