22.9. Key Concepts in Marginal Costing

Try these first

1. 1.

   What is the formula for calculating marginal cost?

   Hint

   Think about how costs increase when production increases.

2. 2.

   Define contribution in your own words.

   Hint

   Consider what portion of sales goes towards fixed costs and profit.

3. 3.

   What is marginal cost?

   • Total cost of production
   • Additional cost for one more unit
   • Cost of fixed factors

   Hint

   Focus on the term 'additional' related to unit production.

4. 4.

   True or False: Contribution is calculated as Selling Price minus Fixed Costs.

   • True
   • False

   Hint

   Consider what costs contribute to the product pricing structure.

5. 5.

   A company produces 1,000 units of a product. The fixed costs are ₹200,000, the variable cost per unit is ₹100, and the selling price is ₹200. Calculate the profit if production increases to 1,200 units while the selling price and variable costs remain unchanged.

   Hint

   Remember to calculate total contributions and then subtract fixed costs.

6. 6.

   A firm has fixed costs of ₹75,000 and a contribution margin of ₹150 per unit. How many units must the firm sell to break even?

   Hint

   To find the break-even point, divide fixed costs by contribution per unit.