COST ACCOUNTING AND BREAK EVEN ANALYSIS

Cost accounting provides the detailed cost data that management need to control current operations and plan for the future.

DETERMINING PRODUCT/SERVICE COST

To determine products or services cost you need to trace costs to products/services.

Prime cost + Factory overheads = Cost of production

Cost of production + Selling and Administration overheads = Total costs

BREAK EVEN ANALYSIS

It is a method of studying the relationship between revenue and cost, in relation to sales volume of a business enterprise, and the determination of volume of sales at which total costs are equal to revenue.

Key Point: No profit, No loss or Zero profit and Zero loss = Break Even point.

Break even point (in unit) =    Fixed expenses/Selling price per unit – Marginal cost per unit

Or

                             =       Break even sales value/Selling price per unit

Or

                             =       Fixed Cost/Contribution per unit

Note that Break even point is the point where profit is equal to zero (that is the intersection between revenue and cost)