Marginal cost Essay Example | Topics and Well Written Essays - 1750 words

Marginal cost - Essay Example The contribution value for the business proposal is computed by the difference between the marginal costs and the sales from the energy drinks.The above, cost data indicates that the variable cost per unit remains constant whether the business will produce 100 units, 125 or 150 units of energy drinks. It is however, very clear that the cost per unit of production goes down per every increase in the production as illustrated by the chart table above. What as well also stands out is that the cost per unit is also decreasing with the increase of production for the energy drinks. This is due, to the existence of the fixed cost that is spread over an increasing volume of the output for the energy drink by the business.This is the technique, employed in the production departments and management accountants and are used to determine the feasibility of production cost between those that are variable and that change with the production output and with those that are fixed and they do not have any association with the volume of production. Both the fixed and the variable costs are compared with the sales revenue so as to determine the sales volume, value or the production at which the business makes neither a loss nor a profit. This is the breakeven point for a business. This can as well be represented on the break even chart to indicate the costs at the various levels for the business.The company requires a cash budget of about of about  £11,750. Borrowing that should be done should be done in a way as to cover deficiencies.