Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
7 Cards in this Set
- Front
- Back
Def of contribution cost or marginal cost |
Costing method that’s allocates only direct cost, not overhead costs |
|
The contribution costs depends on two accounting concepts |
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 |
|
What’s the link between profit and contribution cost |
Contribution- overheads |
|
When should a firm stop making a product |
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 |
|
Contribution cost and contracts below full costs |
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 |
|
How can seeking a product for less than its full cost add to the profit of the business |
It makes a contribution and this can be used to help pay overheads and contribute towards profit |
|
what to consider in the contribution cost |
1) if the firm has e enough capacity to operate efficiently or to enter a new market 2) competitors |