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Contribution or marginal costing

Where a business only allocates direct or variable costs to specific goods or services and use the total variable or direct costs as a basis for setting selling price per unit. To estimate each individual product’s actual contribution, ie the contribution per unit, the following steps need to be carried out: (1) Identify the direct or variable costs relating to each product; (2) Total the direct or variable costs for each product; (3) Deduct total direct or variable costs for each product from the selling price of each product to determine the contribution for each product.

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