Costs and Break-Even Analysis

Abstract

This chapter looks at cost and break-even analysis. It cites the difference between management accounting and financial accounting. Management accounting is the financial and non-financial information generated for business managers to help them in their daily operations. Next, the chapter gives the equation to calculate fixed and variable costs via the high-low method. It uses break-even analysis as a tool for decision making. As the chapter shows, the break-even point is where neither a profit nor a loss is made. The chapter also explores contribution, the break-even point, and margin of safety before enumerating the limitations of break-even analysis.