Marginal Costing Statement (Cambridge International AS Accounting)

Profit statements using marginal costing

Spec point — how to prepare costing and profit statements using marginal costing

Costing statements using marginal costing

How do I prepare a marginal costing statement?

• A marginal costing statement shows the contribution

• STEP 1 Calculate sales revenue

  • Selling price per unit × sales volume

• STEP 2 Calculate direct material cost

• STEP 3 Calculate direct labour cost

• STEP 4 Calculate other variable costs

  • E.g. royalties, indirect factory materials

• STEP 5 Calculate contribution

  • Subtract variable costs from sales revenue

• STEP 6 Calculate fixed costs

  • Fixed costs include costs that don't change with production volume

    • E.g. factory rent, factory machinery depreciation

• STEP 7 Calculate profit for the month

  • Subtract fixed costs from contribution

*Example of marginal costing statement *

Worked Example The following data is available for the year ended 31 March 2018.

	$
Sales revenue	47 000
Direct materials	15 000
Direct labour	11 000
Other variable costs	5 000
Factory rent	10 000
Factory machinery depreciation	4 000

Prepare a marginal costing statement for the month to calculate the profit for the month.

Answer:

Identify the variable and fixed costs:

• Variable:

  • Direct materials, direct labour, other variable costs

• Fixed:

  • Factory rent, factory machinery depreciation

	$
Revenue	47 000
Direct materials	(15 000)
Direct labour	(11 000)
Other variable costs	(5 000)
Contribution	16 000
Less fixed costs	(14 000)
Profit for the month	2 000

Final answer: Profit for the month is $2 000