Cost behaviour and break-even analysis

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1. Contribution margin ratio =

  • contribution / sales revenue x 100%
  • contribution / cost of sales x 100%
  • contribution / fixed cost per unit x 100%
  • contribution / cost revenue x 100%
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2. Break-even point (BEP):

  • Fixed cost / Contribution per unit (Contribution per unit = Sales revenue per unit − Variable costs per unit)
  • Fixed cost / Contribution per unit (Contribution per unit = Variable costs per unit + Sales revenue per unit)
  • Variable Cost / Contribution per unit (Contribution per unit = Variable costs per unit + Sales revenue per unit)

3. Fixed cost

  • Remain constant (fixed) when changes occur to the volume of activity
  • Vary according to the volume of activity
  • It is a mixture of fixed and variable cost

4. Relevant cost examples:

  • Opportunity cost & Differential future cost
  • Differential future cost
  • Opportunity cost & Historic cost
  • Differential future cost & Historic cost

5. Semi-Variable Cost or Semi-Fixed Cost

  • Vary according to the volume of activity
  • It is a mixture of fixed and variable cost
  • Remain constant (fixed) when changes occur to the volume of activity then changes

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