Marginal Cost Equation:

Sales  = Variable Cost + Fixed Expenses + Profit /Loss  [S = V + F + P]   (or)

Sales  = Variable Cost + Contribution  [S = V + C ]                           (or)

Sales  - Variable Cost = Fixed Expenses + Profit/Loss [S - V = F + P]      (or)

Sales  - Variable cost = Contribution  [S - V = C]

In order to understand the mathematical relationship between cost, volume and profit, it is desirable to understand the following concepts, their calculation and application:

1. Contribution/Sales (C/S) or Profit Volume (P/V) Ratio.

2. Break Even Point.

3. Margin of Safety.

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