Marginal Costing and Leverage Analysis

Learn to apply Marginal Costing Principles to take financially profitable decision, understand the impact on profit of a change in sales using Leverage Analysis

Application of marginal costing principles is essential to take financially profitable decisions. In the 6 modules comprising this series, Dr. Lamba explains complicated marginal costing concepts in such an easy & interesting way that it will make you wish you had known about it earlier.

Module 1 – Trading on Equity

This module is actually an introduction to the principles of Marginal Costing. It begins with an example dramatically driving home the impact that the pattern of funding has on an organization’s profitability. Dr Lamba then emphasizes on the need for business leaders and key executives to possess the ability to understand a firm’s bottomline merely by knowing its topline, without waiting for accountants to give them this information. He then goes on discuss tools and techniques to do so.

Module 2 – Marginal Costing Break-even Analysis

In this module, using a case, Dr Lamba explains the key terms in marginal costing: Variable Cost, Fixed Cost and Contribution. He explains how to arrive at profit using marginal costing principles, how to calculate break-even points, how to work out the profit at any level of sales and the sales at any level of profit.

Module 3 – Cost-Volume-Profit Analysis

Marginal costing formulae are explained in this module. Dr Lamba explains how, many decisions, which are any how taken on a regular basis, become financially more intelligent if one starts applying marginal costing principles.

Module 4 – Marginal Costing – Cases I

In this module Dr Lamba explains, with the help of illustrations, how to apply marginal costing principles to take decisions pertaining to the period of credit that can be offered to customers, how to factor in the probability of bad debts associated with longer periods of credit, and whether or not one should accept customers that are guaranteed to go bad.

Module 5 – Marginal Costing – Cases II

Cases related to multi-product companies, make-or-buy decisions, how to use the four drivers of profit to improve the bottomline and calculating the break-even credit period that can be offered are discussed in this module.

Module 6 – Leverage Analysis

Leverages, in the context of finance management, denote a disproportionate impact on the bottomline due to a certain change in topline. Dr Lamba explains how fixed cost assets or funds can be used to magnify returns to owners, how to calculate the leverage multiple and how to use Leverage Analysis to gauge the risk profile of any entity.


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