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In marginal costing we value product under variable production cost.if there is a variable non manufacturing overhead cost per unit…..in that case will we reduct that too also from the revenue to arrive at contribution?
another question, i wanna get clear that inventories are valued at direct expenses and production overheads. but when we sell the product we don’t include non manufacturing overheads into the product,they are regarded as period cost, so we sell the product at such a price which will cover up those expenses.is it right?
so in some question we see add 20% of job cost as administrative overhead.SO it means to cover up the expenses we are including it right.
The definition of contribution is that it is the revenue less all variable costs (whether production or non-production costs). – I do suggest that you watch my free lecture on marginal costing where I make this clear.
Non-manufacturing overheads are not included in the calculation of the cost of inventory, but they are still expenses and will therefore reduce the profit. Therefore when determining a selling price the company is going to take all costs into account.
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