Hardly any other cost accounting method is as versatile and universally applicable as contribution margin accounting. From simple production program decisions to transport optimization or high-bay warehouse planning, there are numerous possible applications.
The counterpart to direct costing is absorption costing - absorption costing is suitable for small and medium-sized companies, for companies with a small or no cost accounting system. In general, both cost accounting systems should have a smaller cost center accounting - because the full cost accounting allocates the entire costs (as the name already indicates: full costs) - to the cost objects (= products / = services) - for this you need the cost centers to allocate / allocate the entire costs of the company to the cost objects. That is, the cost objects are the bearers of the costs, because the costs are raised for them, because they are the end products that the company offers to the market / end consumer and therefore these end products / cost objects must also recover these full costs / total costs through the sales price to the end consumer (including a profit margin) (Coenenberg et al., 2016).
Table of Contents
1. Introduction
2. Basic definitions
2.1 The cost elements of direct costing
2.2 Cost progressions in DB accounting
2.3 Subareas of marginal costing
3. Definition of the contribution margin
3.1 Single-level contribution margin accounting
3.2 Multi-level contribution margin accounting
3.2.1 Product-oriented contribution margin accounting
3.2.2 Customer-specific contribution margin accounting
3.2.3 The process-based contribution margin accounting
3.2.4 The fixed cost contribution margin calculation
4. Contribution margin and break even
4.1 The break-even point for series or type production
4.2 The contribution margin for make-to-order production
4.3 Full and unit cost analysis
4.4 Strategic Break Even Analysis
4.5 Quantity, profit and sales price
4.6 The problem of cost remanence
5. Assortment planning with contribution margins
5.1 An introductory example
5.2 Planning procedure with relative contribution margins
6. Further applications of contribution margin accounting
7. Summary
Objectives and Topics
This work aims to provide a comprehensive introduction to contribution margin accounting, exploring its application as a transparent alternative to full cost accounting for internal management control and strategic decision-making.
- Fundamental definitions of variable and fixed costs in direct costing.
- Methodological classification of single-level and multi-level contribution margin calculations.
- Mathematical and visual analysis of break-even points in various production environments.
- Strategic use of contribution margins for assortment planning and bottleneck management.
- Exploration of cost remanence and its implications for controlling and enterprise risk.
Excerpt from the Book
The problem of cost remanence
All of the above types of presentation neglect the fact that the fixed costs associated with the operation of technical aggregates, at certain performance limits, are mostly increase abruptly (e.g. in the case of the acquisition of a further plant, due to so called fixed costs). In this context, one speaks of the so-called cost remanence: (Marx, Diering, 2015).
This is the phenomenon whereby, when employment falls, total costs are reduced to a lesser extent than the reduction in output. When employment falls, the entrepreneur is "stuck" with certain (so-called "remanent") costs that either cannot be reduced at all or only with a time lag. Cost remanence stems from the fact that fixed costs cannot be reduced proportionally. Remanent costs are in particular: (Marx, Diering, 2015).
1. imputed costs, in particular imputed interest, imputed depreciation and imputed risks;
2. insurance, rent and similar costs arising from continuing obligations, and
3. salaries, non-productive wages and social security (Marx, Diering, 2015).
Summary of Chapters
1. Introduction: Discusses the versatility of contribution margin accounting and explains the limitations of full cost accounting regarding cost transparency.
2. Basic definitions: Establishes fundamental terminology for cost elements and describes the behavior of costs in relation to output volumes.
3. Definition of the contribution margin: Details the mathematical basis of the contribution margin and introduces single-level and multi-level accounting structures.
4. Contribution margin and break even: Analyzes the calculation of break-even points and explores strategic considerations like cost remanence and performance limits.
5. Assortment planning with contribution margins: Examines tactical production decisions and demonstrates how relative contribution margins optimize results under resource constraints.
6. Further applications of contribution margin accounting: Provides an overview of various practical application facets for future study and implementation.
7. Summary: Recaps the core benefits of partial cost accounting and its role in improving corporate profit margins.
Keywords
Contribution margin, Direct costing, Absorption costing, Fixed costs, Variable costs, Break-even analysis, Cost remanence, Assortment planning, Bottleneck calculation, Strategic competitiveness, Management control, Full cost accounting, Profit optimization, Performance limits.
Frequently Asked Questions
What is the primary focus of this publication?
The work provides an introduction to the concepts and application possibilities of contribution margin accounting, focusing on its role as a transparent tool for internal management and strategic business decisions.
Which cost accounting systems are compared?
The book contrasts traditional full (absorption) cost accounting with direct costing (contribution margin accounting) to highlight the benefits of the latter in cost transparency and emergency sales planning.
What is the central research question addressed in this text?
The text seeks to demonstrate how partial cost systems can be implemented meaningfully to provide transparency and functional controlling, specifically by relating contribution margins to actual cost causes.
Which scientific method is primarily employed?
The book uses a descriptive and analytical approach, combining mathematical formulas, graphic representations of cost trends, and practical illustrative examples to explain complex business administration concepts.
What is covered in the main part of the document?
The main sections cover definitions of cost elements, the mathematical breakdown of contribution margins, break-even analysis for different production types, and strategic assortment planning under bottlenecks.
Which keywords best characterize this work?
The work is best defined by terms such as contribution margin, direct costing, break-even analysis, assortment planning, and strategic management control.
How is cost remanence defined in this context?
Cost remanence refers to the phenomenon where total costs do not decrease proportionally when employment or production output falls, often leaving entrepreneurs with "stuck" fixed costs that are difficult to reduce.
Why is the "relative contribution margin" important for assortment planning?
The relative contribution margin is crucial because it allows companies to optimize production programs when faced with real bottlenecks, such as limited working time or specific resource restrictions.
- Arbeit zitieren
- Dipl.-Betriebs- und Verwaltungswirt und PhD Maged Hassanien (Autor:in), 2021, Basic features of contribution margin accounting. Procedure and application possibilities of the partial cost accounting. Part 1, München, GRIN Verlag, https://www.grin.com/document/1150516
