costs & revenues

What is meant by contribution? In terms of marginal costing and the treatment of fixed costs.

Comments

  • mighty18mighty18 AAT Student Posts: 15
    How do you calculate contribution and what is its relevance in marginal costing?
  • davealucasdavealucas LondonMAAT Posts: 63
    Marginal costing is calculating the gross profit required to pay your fixed costs. Contribution is the revenue received less any variable costs. The contribution then 'contributes' a profit to the fixed costs (hence the term contribution). It is very useful when trying to calculate your break-even analysis.

    Absorption costing is when you include the fixed costs into the equation.
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