Question: In marginal costing, how is contribution margin calculated?
Options:
Sales - Total Costs
Sales - Variable Costs
Sales - Fixed Costs
Sales - Direct Costs
Correct Answer: Sales - Variable Costs
Solution:
Contribution margin is calculated as Sales minus Variable Costs.
In marginal costing, how is contribution margin calculated?
Practice Questions
Q1
In marginal costing, how is contribution margin calculated?
Sales - Total Costs
Sales - Variable Costs
Sales - Fixed Costs
Sales - Direct Costs
Questions & Step-by-Step Solutions
In marginal costing, how is contribution margin calculated?
Step 1: Identify the total sales amount. This is the total revenue generated from selling products or services.
Step 2: Identify the total variable costs. These are costs that change with the level of production or sales, such as materials and labor directly involved in making the product.
Step 3: Subtract the total variable costs from the total sales amount. This will give you the contribution margin.
Contribution Margin – The contribution margin represents the portion of sales revenue that exceeds total variable costs, indicating how much revenue is available to cover fixed costs and generate profit.
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