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Dear Sir John,
I have few more Q for you.
Q1) Company operates marginal costing system. Variable costs are budgeted to be 60% of sales value and fixed costs are budgeted to be 10% of sales value.If company increase its selling price by 10% and fixed cost variable cost/ut and sales volume remain unchanged. What would be the effect on Contribution?
I try this and 50% Q was solved by me.
SOLUTION,
Original Selling price 100 Revised selling price 110
Varaible cost ( 60 ) variable cost ( 60)
Contribution 40 50I am not getting this step
50- 40/40 *100 = 25%Plz explain this why we have done it?
Thank you
ShehvarContribution is selling price less variable costs.
At the moment, if sales are 100 and variable costs are 60 then the contribution is 40.
If the selling price goes up by 10% to 110, and variable costs stay at 60, then the contribution is 50.
So….the contribution has increased by 10 (from the current 40).
In percentage terms, it has increased by 10/40 x 100% = 25%
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