Application of margin analysis for management decisions

The article describes the importance of marginal analysis in decision-making. It is substantiated that costs and margin profit are key indicators in management decision-making. It is established that the costs for break-even analysis are divided into variable and constant, meanwhile, the price should cover the full cost, which is determined solely for management accounting needs. The method of costing in management accounting has certain peculiarities; in particular, different types of costs are determined for management needs. The method of variable and fixed costing of manufactured and sold products has been considered. The necessity of calculating the production cost applying a "direct-costing" method for marginal analysis has been substantiated. The method of margin analysis and break-even point calculation has been considered. For the needs of management accounting and cost management, it is proposed to detail and determine the marginal profit by its sources, namely by product sale and by the total marginal profit. For management decisions making, it is recommended to compute the break-even point sequentially by stages and types of marginal profit: computation of break-even point on the basis of fixed production costs and marginal sales profit; calculation of break-even point based on total fixed costs, total variable costs, and marginal profit of the enterprise. This allows determining the upper and lower limits of the break-even point, prices and sales volumes to cover fixed costs and not to receive losses. Undertaking more detailed marginal analysis and enterprise`s profit by the types of economic activities, marginal profit should be computed by the types of activity as well, allocating incomes, variable and fixed costs by types of activity