Costs

Front 1

Def of contribution cost or marginal cost

Back 1

Costing method that’s allocates only direct cost, not overhead costs

Front 2

The contribution costs depends on two accounting concepts

Back 2

1)The cost of producing an extra unit. ( direct cost )

2) the contribution of a product is the revenue gained from selling a product less it’s marginal costs

Front 3

What’s the link between profit and contribution cost

Back 3

Contribution- overheads

Front 4

When should a firm stop making a product

Back 4

Marginal costing shows manager that a product or service is making the greatest or least contribution to overheads and profit. A business who is making a loss, might still be making a positive contribution. In such cases, ending a good which makes positive contribution will reduce the overall profits of a business therefor it should continue

While it it’s making a negative contribution, the business needs to consider if it is an important part of the product range and if they are better future for the product

Front 5

Contribution cost and contracts below full costs

Back 5

If a firm has spare capacity or if it trying to enter a new market segments the marginal costing assists managers in deciding where’re to accept an order below the full cost. It might appear unwise to accept an a contract that does not immediately create value to the business, but as long as contribution can be earned the. This could be the best decisions - especially if it leads to further orders that create further values