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    Question

    Which costing method uses Contribution and Fixed Costs

    to analyze profitability?
    A Absorption Costing Correct Answer Incorrect Answer
    B Marginal Costing Correct Answer Incorrect Answer
    C Standard Costing Correct Answer Incorrect Answer
    D Historical Costing Correct Answer Incorrect Answer
    E Budgetary Costing Correct Answer Incorrect Answer

    Solution

    Contribution is the profit level under Marginal Costing which contributes first towards recovery of fixed costs and later, leads to the generation of profits. Under marginal costing: • Contribution = Selling price – Variable cost • Break even = Fixed cost / Contribution per unit

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