Friday, August 12, 2011

What is Break-Even Pricing?

In managerial accounting, break even pricing extends the use of marginal cost principle that is frequently used.  Break-even pricing is based on the study of break even analysis to determine the effect on profits of small changes in cost as a result of changes in the manufacturing volume of a company.

The level of sales at which there is no profit, also referred to as no loss, is called the break-even point for this type of analysis. At this point, the firm is able to recover all its costs (fixed costs and variable costs) at this level of production. Thus, when an company has achieved its breakeven level, it would be able to immediately increase its profits if it accepts extra orders at a price which is at least equal to the marginal cost per unit of additional production.

Breakeven point (BEP) can be calculated by using the following formula: 

  • BEP (units) = Total fixed costs/contribution per unit 
  • Contribution per unit (CPU) = Selling price - variable cost per unit 
  • Breakeven level of sales in value = BEP (units) * selling price per unit


Additional Related Accounting Examples:

Saturday, August 6, 2011

Journal Entry for Refundable Deposit

How do you record a refundable deposit for an internet service in a double entry accounting journal?  What accounts should be used ?


Answer: 

Debit: Refundable Deposit $xxx
Credit: Cash $xxx

Also, You may appropriately indicate which corresponding account is affected, example, refundable deposit - internet or refundable deposit - telephone and similar accounts.

Wednesday, August 3, 2011

What are Engineered Costs?


Engineered costs are most relevant in managerial accounting and result from a cause-and-effect relationship between the cost driver— output—and the direct or indirect resources used to produce specific output.

Another unique aspect of Engineered Costs is that they also have a detailed and observable relation with the output.

Popular Accounting Problems

The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.