CMA Intermediate · Cost Accounting · Marginal Costing
Which statement about contribution in marginal costing is correct?
Contribution is sales less variable cost, and it equals fixed cost plus profit. This is the basic marginal cost equation. At the break-even point profit is zero, so contribution just covers fixed cost.
- AContribution equals sales minus total cost
- BContribution equals sales minus variable cost, and fixed cost plus profit equals contributionCorrect
- CContribution equals profit plus variable cost
- DContribution equals fixed cost minus profit
Explanation
Marginal cost equation: Sales - Variable cost = Contribution = Fixed cost + Profit. Sales minus total cost gives profit, not contribution. The other options do not follow from the equation.
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