The cost of a product under marginal costing or variable costing includes only the variable costs of making the product. The variable costs include direct material, direct labour and variable overheads. Variable costs per unit approximate the marginal cost of making another unit of a product. Selling price minus variable costs adds up to contribution. Contribution is the amount of money available to cover the fixed costs and afterwards to contribute to profit. The fixed …
showed first 75 words of 514 total

showed last 75 words of 514 total
…the same quality of output for less money to justify the outsourcing. In my opinion it is true that marginal costing ignores other relevant commercial factors. The contribution of a product on its own should not be decisive and is short term thinking. A company has to pay attention to customers, public and competitors as well. A long term strategy including financial and non-financial factors should be established to ensure a profitable and sustainable performance.