Page 24 - Manac Costing Test 1 class slides - 2. Variable And Absorption Costing
P. 24
COSTING
Cost terms and concepts
• The contribution ratio indicates the percentage of sales
available to cover fixed costs. Once ALL fixed costs are
covered, each additional unit sold increases net profit by
the amount of the contribution per unit.
• The breakeven point is the point where the total
contribution is equal to total fixed costs (the point where
profit is zero).
• The margin of safety is the excess of budgeted (or actual)
sales over the breakeven sales, that is, the amount or
percentage by which sales revenue may decline before
losses commence.
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