Business Administration and Cost Management
Core concepts
Understand cost types: fixed, variable, direct, indirect, and overhead. Know contribution margin (revenue minus variable cost), break-even analysis, and the difference between cost accounting and financial accounting. Cover calculation of hourly rates, machine hour rates, and quotation pricing including material, labour, overhead and profit. Understand investment appraisal basics: payback period, return on investment and net present value in principle.
Traps in questions
- Confusing profit with contribution margin.
- Forgetting overhead when calculating an hourly rate.
- Mixing fixed costs into a short-term decision; fixed costs do not change with volume in the short run.
- Ignoring the difference between turnover and profit.
- Using gross figures where net figures are required (VAT).
Worked example
A workshop has fixed costs of 120 000 € per year and a contribution margin of 60 € per service hour. Break-even = 120 000 / 60 = 2000 hours per year, about 40 hours per week over 50 weeks. If only 1800 hours are sold, the loss is (2000 − 1800) × 60 = 12 000 €. Rule of thumb: break-even quantity = fixed costs / contribution margin per unit.
Practical competence
Be able to build a simple quotation and justify it, calculate an hourly rate including overhead, and explain why accepting an order below variable cost is dangerous. Understand that documentation of costs supports pricing decisions and warranty claims.