Marginal Costing

Management Accounting

provide the financial information needed to assist managers to plan and make decision about the future of the business. mainly to calculate the costs associated with producing our products.

Direct costs

associated completely with the production of a particular product e.g materials, direct wages.

Indirect costs

not directly related to the production of a particular product, essential costs involved in the running of the business. e.g. rent, insurance, light and heat

Fixed costs

(direct or indirect) which do not change as the quantity of units produced changes, e.g. insurance

variable costs

(direct or indirect) which do change as the quantity of units produced changes. e.g. materials

Mixed cost

part fixed and part variable. e.g. energy bill

contribution per unit

Selling price - Variable cost per unit, represents how much of the selling price contributes towards covering our fixed costs, once fixed costs covered represents profit on each unit sold.

Break-even Point

the number of units that must be sold for the income from these sales to equal the total costs involved in producing and selling these goods.

Margin of safety

the difference between the actual level of sales in a particular period and the break-even level of sales.

sensitivity of analysis

process of examining the effect a change in any of the following variables will have on profit. … selling price, material cost, labour costs, variable costs.

Marginal costing formula

sales = fixed costs + variable costs + profit