Cost Analysis - R J Brennan, CPA

By analysing our expenses we can attempt to separate the costs that vary depending on sales volume from those costs that are fixed even if our sales are zero. This enables us to do things like:

- estimate our breakeven point for sales (what will sales have to be to cover all expenses)
- project our financial statements based on varying sales volumes and product mixes (important to see if we will be profitable or not)
- determine our minimum selling prices when we have excess production capacity

We might be able to cost activities and products more accurately using a method that requires some internal research. We determine what cost creating events are generated by our products, estimate the total number of events per year, pool these event costs per year, and then apply the costs to our products based on the events that they generate. If done correctly we will have more accurate costs and a better idea of what the selling prices should be for each product. If the selling price can't be realized we should consider dropping the product.