Costing: Marginal & Absorption Costing

Cost behaviour and contribution

Costs are fixed (unchanged with output, e.g. rent) or variable (vary with output, e.g. materials). Contribution is selling price less variable cost:

$$\text{Contribution per unit} = \text{Selling price} - \text{Variable cost per unit}$$

$$\text{Break-even units} = \dfrac{\text{Fixed costs}}{\text{Contribution per unit}}$$