Absorption And Marginal Costing

Question 1

Contribution

Answer 1

The difference between sales revenue and variable cost

No profits unless contribution exceeds fixed costs

Question 2

When do we work out contribution?

Answer 2

After all variable costs including non-manufacturing variable costs

Question 3

What is CVP?

Answer 3

Cost volume profit

CVP assumes fixed/variable relationships are identified and remain constant

Question 4

Assumptions of CVP

Answer 4

Single product or a constant sales mix
Short term only
All production is sold
Separation of fixed and variable costs possible, marginal costing approach essential

Question 5

Contribution margin

Answer 5

The difference between revenue and all variable costs (production, selling and distribution, any other variable costs)

Question 6

Break even point

Answer 6

The volume (quantity) or sales needed to achieve a no-profit, no-loss position

Question 7

Margin of safety

Answer 7

The extent to which the planned volume of output or sales lies above the break-even point