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.
Enroll to start learning
You've not yet enrolled in this course. Please enroll for free to listen to audio lessons, classroom podcasts and take practice test.
Sections
Navigate through the learning materials and practice exercises.
What we have learnt
- Break-even analysis determines the point where total revenue equals total costs.
- Marginal costing focuses solely on variable costs, treating fixed costs as period costs.
- Understanding both concepts aids in making informed pricing and production decisions.
Key Concepts
- -- Breakeven Point (BEP)
- The level of output or sales at which total revenue equals total cost.
- -- Fixed Costs
- Costs that remain constant regardless of the production level, such as rent and salaries.
- -- Variable Costs
- Costs that vary directly with the level of production, including raw materials.
- -- Contribution Margin
- The selling price per unit minus the variable cost per unit, indicating the amount available to cover fixed costs and contribute to profit.
- -- Margin of Safety (MoS)
- Represents the difference between actual sales and break-even sales, indicating the risk level in sales decline.
- -- Marginal Costing
- A costing technique focused on variable costs, treating fixed costs as period expenses written off against revenue.
Additional Learning Materials
Supplementary resources to enhance your learning experience.