Variable overhead 10,000 5,000 15,000 50,000 23,000 73,000 25,000 2.000 Contribution Fixed cost 27,000 15,000 Profit 12.000 19 Commentary: if product Y is introduced, the profitability of product X is not affected in any manner. On the other hand, product Y provides a contribution of Rs.2,000 Towards fixed cost and profit. Therefore, Y should be introduced 3. Level Of Activity Planning Marginal costing is of great help while planning the level of activity. Maximum contribution at a particular level of activity will show the position of maximum profitability. Illustration 6: Following is the cost structure of sundaram corporation, pondicherry, manufacturers of colour tvs. 50% 200 Level of activity 70% 280 90% 360 Output (in units) Cost (in rs.) Materials Labour Factory overhead 10,00,000 3,00,000 5,00,000 14,00,000 4,20,000 6,00,000 18,00,000 5,40,000 7,00,000 Factory Cost 18,00,000 24,20,000 30,40,000 In view of the fact that there will be no increase in fixed costs and import license for the picture tubes required in the manufacture of its tvs has been obtained, the corporation is considering an increase in production to its full installed capacity. The management requires a statement showing all details of production costs at 100% level of activity