Join Jim Stice for an in-depth discussion in this video Importance of total contribution margin, part of Breakeven and Cost-Volume-Profit (CVP) Analysis.
- We were both born in Dugway, Utah,…a very interesting place,…but that's a story for another day.…- Let's use Dugway as the setting…for a hypothetical example.…Let's say that we are helping a friend…who owns and operates Wild Horse Wedding Announcements…in Dugway, Utah.…Because Wild Horse is the only wedding announcement…provider in town, our friend…has great latitude in setting prices.…- Our friend has been trying to set fair prices,…which means our friend has been pricing…each wedding announcement order…at cost plus $50.…The cost is $350 per order, so our friend…has been setting the price at $400 per order.…
The cost of $350 plus a profit of $50 per order.…- Now the problem is that even though…our friend is selling 40 orders per month,…he's losing about $2,000 per month.…Our friend's mistake is that when he…thinks of the word cost, he's only thinking…of his variable cost, the material costs…and hourly wages he must pay…for the completion of each order.…- He has $4,000 in fixed costs.…Building rent, insurance and so forth.…
Jim Stice
Earl Kay Stice
Released
3/1/2016Want to learn more? Learn about three types of accounting—financial, managerial, and income tax—in their Accounting Fundamentals course.
- Breaking down fixed and variable costs
- Pricing a service to cover costs
- Identifying high contribution margins
- Calculating a company's breakeven point
- Conducting breakeven analysis with breakeven equations
- Computing target net income
- Exploring sensitivity analysis
Skill Level Beginner
Duration
Views
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Introduction
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Welcome2m 6s
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1. Importance of Analysis
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2. Types of Costs
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3. Contribution Margin & the CVP Equation
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McDonald's breakeven point4m 54s
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4. The Breakeven Equation
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5. Computing Target Net Income
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6. Sensitivity Analysis
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Conclusion
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Video: Importance of total contribution margin