Marginal Costing Flashcards
What is a variable cost and 2 other names for it
Cost that changes with output
Marginal cost
Direct cost
What is a fixed cost and 2 other names for it
Costs that don’t change with output
Indirect costs
Overheads
How to calculate total cost
Total variable costs + fixed costs
How to calculate revenue
Price x quantity
What is contribution per unit
Selling price - variable costs
Used to pay fixed costs then profit
What is the break even point
When total costs = total revenue
No profit or loss
Formula for break even
Fixed costs / contribution per unit
What is margin of safety and how can you calculate it?
Amount you can reduce production by and still break even
Current output - break even point
100 units
£500 total revenue
£320 total costs
£120 fixed costs
What is the BEP?
5 - 2=3
120/3=40 units
What is target profit formula?
(Fixed costs + target profit) / contribution per unit
Make or buy … what should you consider?
Highest positive contribution
Quality
Reliability
Customer service
Lead times
Special order … what should you consider?
Positive contribution
Not sold on
One-off
Spare capacity
Regular customers don’t find out
Ranking products … what products should you make first?
Highest positive contribution
Limiting factor … what products should you make first?
Highest contribution per limiting factor
