Marginal Profitability Analysis

Learning Objectives

• To explore the definitions of marginal costs and marginal profitability
• To discover how to use a cost-volume-profit analysis and break-even analysis
• To identify the pros and cons of using marginal profitability analysis, activity-based costing, and traditional full absorption costing.
• To explore the following keys factors to profitability: cannibalization, excess capacity, and step-fixed cost
• To recognize the best uses for marginal profitability analysis

Course Description

Marginal profitability analysis provides relevant decision information for setting prices, product design, and product profitability. Analysis of whether to open or close locations or divisions can also be done using marginal profitability analysis. This webinar provides key insights with better information provided by marginal profitability analysis. It will cover the following topics:

Key Topics:

• What are the marginal cost and marginal profit? How do we define them?
• How to calculate marginal profitability?
• How to create cost-volume-profit analysis (CVP) and breakdown analysis?
• Comparison of marginal profitability with Traditional full Absorption Product Costing, or Activity-based costing
• Identifying the pros and cons of marginal profitability, traditional full Absorption costing, and activity-based costing
• Recognizing when marginal profitability, traditional full absorption costing, and activity-based costing are appropriate
• Practical examples of making decisions with marginal profitability analysis - include examples of determining optimal production amounts and which products to promote. 
• How to calculate the change in profitability from a price increase and a price decrease. It is explained in-depth with a worksheet template. 

The simpler and actionable nature of marginal profitability analysis can support businesses in making informed tactical decisions that will be highly beneficial in the long run. This webinar will be key-value provider for the professionals who are employed or to professionals in practice who need to provide guidance to their clients. 

Overview

• Definition of Marginal Costs and Marginal Costs and Marginal Profit

  5 mins
• Example of three types of costs

  13 mins
• Asymmetric cost changes

  19 mins
• Marginal Profit and Activity-Based Costing (ABC)

  31 mins
• Which product to produce?

  43 mins
• Pricing increase analysis

  52 mins