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Cost - Volume - Profit: Marginal Costing

This document discusses cost-volume-profit analysis and marginal costing. It explains that contribution, the amount sales exceed variable costs, is key for making short-term decisions about accepting special prices, continuing unprofitable products, and allocating scarce resources. The breakeven point is calculated as fixed costs divided by contribution per unit. Marginal costing can help determine if a special order price is profitable and which products maximize contribution per unit of a scarce resource. Semi-variable costs are also discussed.

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Estee Fong
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29 views

Cost - Volume - Profit: Marginal Costing

This document discusses cost-volume-profit analysis and marginal costing. It explains that contribution, the amount sales exceed variable costs, is key for making short-term decisions about accepting special prices, continuing unprofitable products, and allocating scarce resources. The breakeven point is calculated as fixed costs divided by contribution per unit. Marginal costing can help determine if a special order price is profitable and which products maximize contribution per unit of a scarce resource. Semi-variable costs are also discussed.

Uploaded by

Estee Fong
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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Cost - Volume - Profit

or

Marginal Costing

Short term decisions


Whether to accept a special price for your service / product. Whether to continue with apparently unprofitable products. Whether to make an item or buy it in from outside. How to make the best use of scarce resources.

Contribution is the key


Sales less Variable Costs Contribution x <x> x

Per unit:
Sales less Variable Costs Contribution per unit = 10 < 8> 2

Looking at the whole company:


Sales less Variable Costs Contribution x <x> x

Less Fixed Costs Profit

<x> x

For example:

Sales (6,000 units @ 10) less Variable Costs (8) Contribution


Less Fixed Costs Profit

<

>

< 5,000 >

Breakeven point

Fixed Costs Contribution / unit

Breakeven is at

units sold.

At the sales level of 6,000 units:

The Margin of Safety is = units above breakeven.


Each unit above breakeven makes profit, so total profit =

units

Accept a special price?


A customer has offered to buy 4,000 units if you will sell them for just 10 a unit. Your normal sales price is 20 Your total cost per unit is 16, made up of 10 fixed costs and 6 variable costs per unit. Should you accept the contract?

If you accept the offer:


What is the increase in contribution?

Limited Resources:
Which products should you make?
Maximise the Contribution per unit of resource in short supply. Eg if skilled labour is in short supply, choose the products which give you the highest Contribution per Hour of skilled labour.

Semi-Variable costs
Output (units) 200,000 360,000 Total Costs () 240,000 336,000

Variable cost per unit = ? Fixed Costs are ? If a unit is to be sold for 1.00, what is the Breakeven quantity?

Test 1 next Monday 29th Oct CKY 502


The test is on the: Balance Sheet Income Statement Cash Flow Forecast It will involve numerical calculations.

15.00 Surnames A N 16.00 Surnames O - Z

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