Marginal costing

Section 2 of 11

Contribution and the Marginal Costing Statement

Contribution per unit = Selling Price − Variable Cost per unit

Total Contribution = Total Revenue − Total Variable Costs

Contribution first covers fixed costs; the remainder is profit
If total contribution equals fixed costs exactly → break-even (zero profit)

Statement layout:

	£
Revenue	X
Less: Variable costs	(X)
Contribution	X
Less: Fixed costs	(X)
Profit / (Loss)	X

Example — Denton Bike Co. 50 bikes; SP £225; VC £155

Contribution per unit = £225 − £155 = £70
Total contribution = 50 × £70 = £3,500

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