Job costing

Question 1

Absorption costing method

Answer 1

Manufacturing costs
o	Direct materials 
o	Direct labour
o	Manufacturing overhead
o	Gross margin = sales - manufacturing cost (both variable and fixed manufacturing costs)

Question 2

Variable costing method

Answer 2

Variable costs (manufacturing cost)
o Direct materials
o Direct labour
o Contribution margin = sales - manufacturing costs (only variable costs)

Question 3

Contribution margin

Answer 3

Contribution margin is the revenue remaining after subtracting the variable costs that go into producing a product. Contribution margin belongs to the category variable costing and measures the profitability of individual products.

Contribution margin = sales - variable costs

Question 4

Gross margin

Answer 4

Gross margin is revenue remaining after direct production costs. This does not include operating expenses such as sales and marketing expenses, or other items such as taxes or loans. The gross margin belongs to the category absorption costing.

Gross margin = sales - manufacturing costs (variable and fixed)

Question 5

Variable cost

Answer 5

Variable cost is a cost that vary with the activity. It is constant per unit of activity but change when activity changes. Example chemicals and plastic.
Variable cost is unit production cost of a product.

Question 6

Fixed cost

Answer 6

Fixed cost is constant in total within the relevant range. Example rent and salary. Fixed cost is a cost that remain constant regardless of number of units produced.