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Marginal Profitability Analysis provides relevant decision information for setting prices, product design and product profitability. Analysis of whether to open or close locations or divisions can also be done with marginal profitability analysis.

The course starts by defining marginal costs and marginal profits and then explains how to calculate marginal profitability. You will learn how to create cost-volume-profit (CVP) analyses and breakeven analysis. Marginal profitability is compared to traditional full absorption product costing or activity-based costing to identify the pros and cons of each method and when each is appropriate.  

The course provides practical examples of making decisions with marginal profitability analysis. Examples include determining optimal production amounts and which products to promote. The final section explains how to calculate the change in profitability from a price increase and a price decrease. A worksheet template is provided for this analysis.

 

Course Key Concept: Marginal profitability analysis, Contribution margin, Marginal cost, Marginal profit, Cost volume profit analysis, CVP analysis, Activity based costing, Profitability, Breakeven analysis, Pricing analysis.

Learning Objectives

  • Explore the definitions of marginal costs and marginal profitability.
  • Discover how to use a cost-volume-profit analysis and break-even analysis.
  • Identify the pros and cons of using marginal profitability analysis, activity-based costing, and traditional full absorption costing.
  • Explore the following keys factors to profitability: cannibalization, excess capacity, and step-fixed costs.
  • Recognize the best uses for marginal profitability analysis.
Last updated/reviewed: November 19, 2020

4 Reviews (8 ratings)Reviews

5
Member's Profile
Excellent mixture of theory and practical applications of marginal profitability, a somewhat basic introduction to the concept. Waiting for the author to expand the course into more detailed course dealing with probability ranges maybe, and an overview on how to set up a system that contains data for both MPA and ABC-based PA? Overall, absolutely great class.
5
Anonymous Author
I found this course very valuable. The material was well presented but the pace was a bit too quick (I will need to go back and review a few of the slides!). This course is a great refresher for those that do this every day and an important one for those in finance who don't.
5
Member's Profile
This is my first course on Marginal Profitability Analysis and I really enjoyed it. Rob Stephens does a fantastic job of explaining key concepts and obviously is very experienced in this field of analysis.
5
Member's Profile
Great recap of key concepts and solid examples. Loved the excel example with the use of goal seek.

Prerequisites

Course Complexity: Foundational

No advanced preparation or prerequisites are required for this course.

Education Provider Information

Company:
Illumeo, Inc., 75 East Santa Clara St., Suite 1215, San Jose, CA 95113
Contact:
For more information regarding this course, including complaint and cancellation policies, please contact our offices at (408) 400- 3993 or send an e-mail to .

2 QuestionsCourse Questions and Answers

Member's Profile

Prof. Stevens, could you pls recommend a textbook on practical applications of the MPA? Thank you, enjoyed your class greatly

Member's Profile

I don't teach this at Gonzaga so I don't know about textbooks. Here are some links to materials I researched for this class or read over the years:
- The classic book where I was first introduced to marginal analysis and theory of constraints (TOC) was "The Goal" by Eliyahu Goldratt
-Read the article titled "Improve Internal Reporting with ABC and TOC" in this magazine: https://sfmagazine.com/wp-content/uploads/historic/1990-1999/1998-11-Management-Accounting-v80-n5.pdf
- https://cpadiary.files.wordpress.com/2013/04/management-accounting-performance-evaluation-2006e.pdf
- https://core.ac.uk/download/pdf/230050701.pdf

Course Syllabus
INTRODUCTION AND OVERVIEW
  4:17Introduction to Marginal Profitability Analysis
  10:26Definitions of Marginal Costs and Marginal Profits
  6:38Marginal Costs
  7:00Marginal Profit Calculation
  2:18Data Table
  6:51Marginal Profit and Activity Based Costing
  5:09Practical Application - Part 1: How much to Produce?
  5:15Practical Application - Part 2: Setting Pricing
  3:24Goal Seek
  3:03Pricing Increase Analysis and Conclusion
CONTINUOUS PLAY
  54:21Marginal Profitability Analysis
SUPPORTING MATERIAL
  PDFSlides: Marginal Profitability Analysis
  PDFMarginal Profitability Analysis Glossary/ Index
  XLSXCVP Analysis
  XLSXPricing-Change Analysis
REVIEW AND TEST
  quizREVIEW QUESTIONS
 examFINAL EXAM