Work out marginal costing instantly with clear inputs, formula shown and shareable results.
Marginal costing treats only variable cost as a product cost and charges fixed cost to the period. Contribution per unit is therefore the decision-relevant figure for pricing, product mix and accept-or-reject questions, while profit is total contribution less fixed cost.
Contribution
Contribution per unit = Selling price - Variable cost
Profit
Profit = (Contribution per unit x Volume) - Fixed costs
Break-even
Break-even units = Fixed costs / Contribution per unit
When it still exceeds variable cost, the capacity is genuinely spare, and it will not undermine your existing price list.
Because absorption costing carries fixed overhead inside inventory. When stock levels change, the two methods report different profit for the same trading.