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ACCA Applied Knowledge · Management Accounting · Absorption and marginal costing

Kestrel Co sold 8,000 units at $25 each. Variable cost is $15 per unit and fixed costs are $50,000. What is the profit under marginal costing, and what is the contribution to sales ratio?

Total contribution is 8,000 x $10 = $80,000. Deducting fixed costs of $50,000 gives a profit of $30,000. The contribution to sales ratio is $10 divided by $25 selling price, which is 40%.

  1. AProfit $30,000; ratio 40%Correct
  2. BProfit $80,000; ratio 40%
  3. CProfit $30,000; ratio 60%
  4. DProfit $80,000; ratio 60%

Explanation

Contribution per unit = 25 - 15 = $10; total contribution = 8,000 x 10 = $80,000. Profit = 80,000 - 50,000 = $30,000. C/S ratio = 10/25 = 40%. Quoting $80,000 as profit ignores fixed costs.

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