9609 · 5.4.2
Approaches to costing: full, contribution flashcards
Revision flashcards for Cambridge 9609 Approaches to costing: full, contribution (syllabus 5.4.2). Flip, recall, then mark a real past-paper question.
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What is full (absorption) costing?
A costing method where all production costs, including a share of fixed overheads, are allocated to each unit of output.
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What is contribution (marginal) costing?
A costing method where only variable costs are included in the unit cost. Fixed costs are treated as a period cost.
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What is the formula for contribution per unit?
Selling price per unit − Variable cost per unit.
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When is contribution costing most useful?
For short-run decisions like break-even analysis, accepting/rejecting special orders, make-or-buy decisions, and managing limiting factors.
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When is full costing most useful?
For long-run pricing decisions, inventory valuation for financial accounts, and preparing published financial statements.
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What is the formula for total contribution?
Total contribution = (Selling Price per unit − Variable Cost per unit) × Number of units sold. Alternatively, Total Revenue − Total Variable Costs.
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How is profit calculated using contribution costing?
Profit = Total Contribution − Total Fixed Costs.
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What is the risk of using full cost for a one-off special order decision?
A firm might reject a profitable order if the offered price is below the full cost per unit but above the variable cost per unit. This means losing out on positive contribution.