From Passion to Payday

Module 3 of 8

Costs and margins

How costs behave, contribution margin, break-even, job costing and overhead allocation, worked through a three-plumber company and a cafe menu.

Financial accounting reports what happened. Managerial accounting helps decide what to do next: what to charge, which work to take, how many people to hire. This module uses Hartley Plumbing, a three-plumber company planning its year, and returns to Northside Coffee for the menu. The figures are planning figures, built to be checked by hand.

  1. 3.1Fixed and variable costsCost behaviour and the relevant range, then mixed costs and how to split one with the high-low method.35 min
  2. 3.2Contribution marginContribution per unit and as a ratio, then product mix and testing a price change before you make it.35 min
  3. 3.3Break-even and margin of safetyBreak-even hours and revenue, target profit, margin of safety, and how sensitive profit is to volume.35 min
  4. 3.4Job costingCollecting direct costs by job and applying overhead, then reading a job's profit two ways.35 min
  5. 3.5Allocating overheadPredetermined rates, normal capacity, under- and over-applied overhead, and using more than one cost pool.40 min

Templates in this module

Some templates are free to download. The full set of fourteen working files for modules 1 to 3 is in the Accounting and Finance Toolkit, Part 1.