Using Managerial Accounting Formulas

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There are two managerial accounting formulas that are most widely used, which calculate the contribution margin, variable costs and the break even point. Understand managerial accounting formulas with information from an accounting professor in this free video on business.

Part of the Video Series: Business Accounting
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Video Transcript

Hi my name is Shawn Jones, adjunct professor here at Argosy University. Today we're discussing managerial accounting formulas. There are two formulas, while there are several others that we could talk about, there are two main formulas that I want to discuss today. The first, is being able to calculate contribution margin within a given company or organization. It's a simple formula, but it's simply takes the sales over a given period of time. Whether that be a week, a month or a year. Less variable cost, which you then are able to come up with a number which should also calculated into a percentage. Variable cost are those costs which a business incurs based upon it's sales. So for example, if I sell X amount of widgets, I'm going to have X amount of cost for producing that certain product that our company is producing. Contribution margin then flows in them being able to calculate our company's break even point. Or in other words, what is the amount of money or the amount of sales that our company needs to establish in order to break even? That is calculated by first being able to determine the fixed cost of a given company or an organization, this includes any payments that are made for property, plant, equipment, salaries that go in to running the organization. Any thing that is the same amount that is paid from month to month is know as a fixed cost. You take that number and then divide that by the contribution margin, which we established earlier. From that you're able to come up with your company's break even point, or the point of sales which the company needs to have for it to be able to make a profit, thereafter. For more information about this topic, please visit our website There you can find our phone number or an address to come and visit our Salt Lake City campus.


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