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ACCA Applied Knowledge · Management Accounting · Standard costing system

A standard cost card for Product Q shows variable overhead of $4 per labour hour and a standard time of 2.5 hours per unit. The standard selling price is $60 and standard material and labour cost per unit is $38. What is the standard marginal cost per unit and standard contribution per unit if material and labour are the only other variable costs?

Standard marginal cost is $48 per unit, being $38 of material and labour plus $10 of variable overhead (2.5 hours at $4). Contribution is therefore $60 minus $48, which is $12 per unit. Omitting variable overhead would wrongly give $22.

  1. AMarginal cost $38; contribution $22
  2. BMarginal cost $48; contribution $12Correct
  3. CMarginal cost $42; contribution $18
  4. DMarginal cost $48; contribution $22

Explanation

Variable overhead per unit = 2.5 x 4 = $10. Marginal cost = 38 + 10 = $48. Contribution = 60 - 48 = $12. Ignoring variable overhead gives $38 and $22.

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