Contribution Margin

Contribution margin equals price minus variable costs. It is a cost accounting concept and a fundamental principle of business. Most often used to identify the amount of dollars to offset fixed costs of operations.

Economies of Scale

Of the basic business principles, economies of scale has the greatest impact on profitability over any other business principle.   As an enterprise’s investment is spread over higher volume the cost per unit of production decreases.   The differential between sales price and cost changes add to the overall profitability for the company. Economies of …

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Breakeven Analysis – Fundamentals

Breakeven analysis is a managerial (cost) accounting tool used to examine the relationship of price to cost of a product.   It also considers various sales volumes and the effect on profit given the different relationships of price to cost.   The breakeven analysis is an essential tool in maximizing profit with the least amount of resources.   It …

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Gathering Data from Sales

In business the best source of new business is the existing customer.  Discovering the customer’s habits and characteristics allows the sales department to expand into new geographical territories with similar customer characteristics and/or modify the existing product lines.  The key to success is gathering the proper information at the point of sale. The best example …

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Fixed and Variable Costs in a Restaurant

Many restaurant owners and managers do not understand the difference between their fixed and variable costs.  The problem with defining the two types of costs relates to their connection with sales.  In addition, reasonable assumptions have to be made in order to delineate between fixed and variable costs in the food service industry.  This article …

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Mixed Costs

Mixed costs are a more advanced business concept.  Mixed costs refer to a combination of both a fixed and variable component.  A common error made by most small business entrepreneurs is the misapplication of the formula.  Many small business owners understand the textbook definition but rarely exercise the concept in reality.  This article is written …

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Fixed Costs – Explanation and Examples

‘Fixed costs’ is a business term used mostly in cost accounting.  It has several meanings based on its usage.  The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume.  The best example is rent for a company.  It doesn’t matter whether you produce or sell …

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