In this topic we continue on from fixed and variable costs (introduced in topic 6) and look at analyzing cost behavior.
Cost volume profit analysis is introduced highlighting how a manager can understand the relationship between the volume that an organization is operating, the cost structures the organization faces and its profitability.
The breakeven point is explained in relation to fixed and variable costs and the term contribution margin is introduced.
This topic aims to help you get an understanding of the financial viability of the organization you are in and what it can do to improve its profitability.
Topic 6 – Analysing Cost Behaviour
After studying this topic students will be able to:
Analyse cost behaviour to plan costs and make decisions;
Explain contribution analysis and calculate the contribution margin for individual products, product lines and a business unit;
Use the cost-volume-profit model to evaluate decision alternatives and for planning; and
Understand and use the concept of operating leverage.
