- This topic has 1 reply, 2 voices, and was last updated 7 years ago by
.
- Posts
Dear Sir,
I would like to congratulate you on these fantastic lectures. You are a great teacher and I can fully understand your way of teaching. I was exempted from F2 and I am studying it through EdX but I have a simple and fool question about key factor analysis. Contribution per unit is sales reduced only by variable costs. Why is that done? Why don’t we take also the fixed costs? They also contribute to the total contribution. You explain it but I can’t get the reason why leave out the fixed costs. Thank you very much in advance and I hope you a happy and creative new year.I will answer you, b ut in future please ask in the Ask the Tutor Forum if you want me to answer – this forum is for students to help each other 🙂
Total fixed costs are (by definition) fixed, regardless of the level of production. As they sell more or less units, the total sales revenue will change and the total variable costs will change, however the total fixed costs will remain the same. Therefore it is the revenue less the variable costs (i.e. the contribution) that will change as the sales volume changes.
- You must be logged in to reply to this topic.