Marginal Costing Question:
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What is Contribution?
Answer:
Contribution:
It is the difference between sales revenue and variable cost (also known as variable cost). Variable cost is the important cost in deciding profitability as fixed costs are ignored by marginal costing.
It can be expressed in two ways:
• Sales Revenue – Variable Cost
• Fixed Cost + Profit
The situation generating higher contribution is treated as a profitable situation.
It is the difference between sales revenue and variable cost (also known as variable cost). Variable cost is the important cost in deciding profitability as fixed costs are ignored by marginal costing.
It can be expressed in two ways:
• Sales Revenue – Variable Cost
• Fixed Cost + Profit
The situation generating higher contribution is treated as a profitable situation.
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