Marginal Costing & CVP Analysis

Core concepts

1. 01Marginal cost = variable cost; charge fixed cost to period.
2. 02Contribution = Sales − Variable Cost. Profit = Contribution − Fixed Cost.
3. 03Break-even point: where total revenue = total cost.
4. 04Margin of safety: actual/budgeted sales above BEP.
5. 05Decision-making: make-or-buy, accept/reject special order, key factor analysis.

Exam-critical pointers

• ⭐Marginal costing useful for short-run decisions where fixed costs don't change.
• ⭐Composite BEP for multiple products needs sales mix to be constant.
• ⭐Cash BEP excludes non-cash fixed costs (depreciation).
• ⭐Limiting factor analysis: rank by contribution per unit of limiting factor.