Management 1 (Organizational Behaviour/Finance & Accounting) | 22. Break-even Analysis and Marginal Costing by Abraham | Learn Smarter
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22. Break-even Analysis and Marginal Costing

Break-even analysis and marginal costing are crucial financial tools for effective business decision-making. They enable managers to identify the sales volume required to cover costs without incurring losses, as well as understand cost behaviors in relation to production levels. Mastering these tools allows businesses to optimize pricing strategies and enhance financial planning.

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Sections

  • 22

    Break-Even Analysis And Marginal Costing

    This section covers Break-even Analysis and Marginal Costing, essential tools for financial planning and decision-making in business.

    Learning Practice

  • 22.1

    Meaning Of Break-Even Analysis

    Break-even analysis helps determine the output level at which total revenues equal total costs, enabling businesses to avoid losses.

    Learning Practice

  • 22.2

    Objectives Of Break-Even Analysis

    Break-even analysis aims to identify the level of sales at which a business breaks even, helping managers make informed decisions about pricing and costs.

    Learning Practice

  • 22.3

    Assumptions Of Break-Even Analysis

    Break-even analysis relies on several assumptions regarding cost classification, sales price consistency, and inventory levels to effectively determine a company's break-even point.

    Learning Practice

  • 22.4

    Break-Even Point Formulas

    This section presents formulas to calculate the break-even point in units and sales value, which helps businesses understand their financial performance.

    Learning Practice

  • 22.5

    Graphical Representation: Break-Even Chart

    The break-even chart visually illustrates the relationship between costs, volume, and profits, marking the break-even point where total cost equals total revenue.

    Learning Practice

  • 22.6

    Margin Of Safety (Mos)

    The Margin of Safety (MoS) indicates how much sales can decline before a business reaches its break-even point.

    Learning Practice

  • 22.7

    Applications Of Break-Even Analysis In It Projects

    Break-even analysis helps IT project managers in determining the financial viability of projects through various applications.

    Learning Practice

  • 22.8

    Marginal Costing: Meaning

    Marginal costing is a technique that charges only variable costs to products, treating fixed costs as period costs.

    Learning Practice

  • 22.9

    Key Concepts In Marginal Costing

    Marginal costing focuses on the additional costs incurred while producing one more unit, emphasizing contribution and profit calculations.

    Learning Practice

  • 22.10

    Features Of Marginal Costing

    This section outlines the critical features of marginal costing and its utility in short-term decision-making.

    Learning Practice

  • 22.11

    Advantages Of Marginal Costing

    Marginal costing simplifies decision-making within organizations by emphasizing the significance of variable costs in product pricing and profitability assessments.

    Learning Practice

  • 22.12

    Limitations Of Marginal Costing

    This section outlines the limitations of marginal costing, highlighting its insufficiency in addressing fixed costs and suitability for long-term planning.

    Learning Practice

  • 22.13

    Decision-Making Using Marginal Costing

    Marginal costing aids in crucial managerial decision-making by analyzing costs related to production and profitability.

    Learning Practice

  • 22.14

    Comparison: Marginal Costing Vs Absorption Costing

    This section contrasts marginal costing with absorption costing, highlighting key differences in cost treatment and usage.

    Learning Practice

  • 22.15

    Numerical Example

    This section presents a numerical example to illustrate the application of break-even analysis in a business scenario.

    Learning Practice

References

Chapter_22_Break.pdf

Class Notes

Memorization

What we have learnt

  • Break-even analysis determi...
  • Marginal costing focuses so...
  • Understanding both concepts...

Final Test

Revision Tests