Accounting · Study Guide
Key Points
Marginal cost is the increase in total cost from producing one more unit; it excludes fixed costs
Contribution (selling price minus marginal cost) shows the cash available to cover fixed costs and profit
Break-even analysis reveals the sales volume needed to cover all costs and the safety margin above it
Exam Focus
Prepare contribution statements, calculate break-even point, interpret the impact of price and cost changes on profitability.
Must-Know Terms
Cross-Theme Connections
Budgeting
Marginal costing informs flexible budget preparation
Standard costing and variance analysis
Standard costing builds on understanding of fixed and variable costs
Absorption and activity based costing
Absorption costing is compared to marginal costing for decision-making