Controlling a Budget
Costing Methods
Here are three examples of commonly used costing methods, which you may come across or choose to utilise.
1.Marginal Costing
This method of costing keeps variable and fixed costs separate.
It shows the gross profit or contribution that a selling price less variable costs makes to a pool of fixed costs.
£10 £4 £6 (*60%)
Unit selling price Unit variable costs Unit contribution (gross profit)
*Gross margin = 60% (£6/£10)
If the total fixed costs were £6,000 p.a. then the company would have to sell 1,000 units to break- even and cover the fixed costs (£6,000/£6 = 1,000 units). If the company sells more than 1,000 units p.a. then it will start to make a net profit.
Future Practice Owner.
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