Costing & Budgeting

Marginal costing

Marginal cost is the cost of producing one more unit (the variable cost). Contribution = selling price − variable cost per unit. Contribution covers fixed costs and then profit: $$\text{profit} = (\text{contribution per unit} \times \text{units}) - \text{fixed costs}$$ Marginal costing helps with decisions like special orders and make-or-buy.