Every management or accounting related course always focus two concepts of economics which include marginal costing and break even analysis due to their importance in business organizations. Marginal costing refers to the alteration of the total cost of a manufacturing process in order to increase a unit of a particular product.
Use of marginal costing is widespread as it comes with various advantages such as:
- It helps in identifying the costs of production easily which can be utilized for controlling the overall cost.
- Understanding and applying the method of marginal costing is quite simple due to which it can be connected with other concepts of economy like standard costing etc.
- It also helps the company to identify which customers are giving maximum profit and can be kept for long run.
- It is an important procedure which helps in deciding if a process has to be kept in-house or its outsourcing.
- It is also utilized to generate reports related to internal inventory of an organization.
- Deciding the most suitable selling price of a commodity is another important managerial decision which can be taken through marginal costing.
Break even analysis refers to the calculating the point at which the revenue received by selling the product or service equals to the cost of production of that product/service in the organization.
Applications of Break Even Analysis are Also Widespread Which Include:
- It helps in calculating the pattern of the profits with its connection to the output.
- It also aids in preparing the finances of the organization.
- It can be implied to finalize the unit prices for product or services.
- It helps in deciding whether a particular product should be purchased from a supplier or must be manufactured by the organization.
- Cost control of various processes within the organization is also done through this method.
Due to its widespread use in business processes, students receive assignments associated with these two concepts. But due to multiple issues like lack of practice, complexity of problems and improper calculations etc leads to difficulties in assignment completion.
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