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Reference: Pearson Edexcel International AS / A Level Accounting Student Book 2. Costing helps a business understand behaviour of costs, contribution and budgets before decisions are made.
Main skills from this lesson
Fixed costs stay the same over a relevant range. Variable costs change with output. Direct costs can be traced to a product; indirect costs support production generally.
fixed | variable
Always classify using the scenario.
Contribution is sales revenue minus variable cost. It helps cover fixed costs and then generate profit.
sales - variable cost
Contribution is useful for break-even and limiting-factor choices.
A budget sets a plan. A variance compares actual results with budgeted results so managers can investigate differences.
budget vs actual
A variance needs explanation, not just calculation.
Continue with quizzes, flashcards, or games when you are ready.