Marginal Costing

Flashcards summarizing key vocabulary terms and definitions related to marginal costing.

Variable Cost

A cost which varies in direct proportion to changes in the level of output.

Fixed Cost

A cost that remains unchanged within a certain level of activity or output.

Semi-variable Cost

A cost that contains an element of both a variable and a fixed cost within it.

Stepped Costs

Fixed costs that are only fixed within certain limits and will increase to a higher level when that limit is reached.

Marginal Cost

The cost of making one extra unit of output.

Contribution

The difference between total revenue and total variable costs; it is the contribution that each unit of production makes towards covering fixed costs and providing profits.

Break-even Point

The point at which total revenue equals total costs, resulting in neither profit nor loss.

Margin of Safety

The difference between actual output and break-even output.

Contribution to Sales Ratio (C/S ratio)

The proportion of sales revenue that contributes towards covering fixed costs and profit.

Marginal Cost of Sales

The variable costs of production and selling of making one extra unit of output.

Cost-volume-profit analysis

A method to analyze how changes in costs and volume affect a company's operating income and net income.

Target Profit

A specific amount of profit that management aims to achieve.

Make or Buy Decision

A decision whether it is more profitable to produce goods in-house or purchase them from an external supplier.

Limiting Factor

Anything that limits the quantity of goods that a business may produce, such as a shortage of materials or labor.

Profit/Volume Chart

A type of chart that shows only the profit or loss at each level of output, omitting cost and revenue lines.

Non-financial Factors

Factors that affect decision-making but are difficult to quantify, such as customer relationships or employee morale.