i have seen in one answer, to find contribution, total direct cost was deducted from selling price. can we deduct all direct costs of production (all relevant costs) even if they are not variable when calculating contribution. also i am confused, when making make or buy decision which approach we have to use, do we have to make the decision by calculating relevant cost or based on the contribution calculation?
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PMmake or buy decision
10y ago#1I will answer this, but if you do want me to answer then in future you must ask in the Ask the Tutor Forum - this forum is for students to help each other.
Contribution is defined as being the selling price less all variable costs (not just direct costs of production).
With regard to the rest of your question, it depends on the precise question.
Have you watched our free lectures?
sorry i didn't know where to post the question, next time i will post it in ask the tutor forum.
yes i have watched the lectures, it is very helpful.
for example in a question, selling price, variable cost and fixed cost that can be avoided by buying from outside is given. There is limited resource and they want to produce 2 different products. how would they decide which product they should be manufacturing and which to be purchased.
do i have to calculate contribution from each product per unit of limiting factor and choose to manufacture the product which gives the highest contribution and buy the other
or
would i need to use relevant costs to calculate how much is saved from each product if bought from outside and make the buying decision based on this
Post the full qiestion here as there are too many variables to give a definative answer.
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