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Management accountng
- 1. S.BINTHIA Department of ManagementStudies V.V.Vannia Perumal College for Women Virudhunagar
- 2. Marginal Costing Marginal Costingis a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution. The term marginal cost implies the additional cost involved in producing an extra unit of output, which can be reckoned by total variable cost assigned to one unit.
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- 4. Characteristics of MarginalCosting
- 5. Marginal Costing AbsorptionCosting 1. Meaning Marginal costing is a technique that assumes only variable costs as product costs. Absorption costing is a technique that assumes both fixed costs and variables costs as product costs. 2. What it’s all about? Variable cost is considered as product cost and fixed cost is assumed as cost for the period. Both fixed cost and variable cost are considered in product cost.
- 6. 3. Nature of overheads Fixedcosts and variable costs. Overheads in the case of absorption costing are quite different – production, distribution, and selling & administration. 4. How profit is calculated? By using profit volume ratio (P/V ratio) Fixed costs are considered in product costs; that’s why profit gets reduced. 5. Determines The cost of the next unit. The cost of each unit. 6. Opening & Closing stocks Since the emphasis is on the next unit, change in opening/ closing stocks doesn’t affect the cost per unit Since the emphasis is on each unit, change in opening/closing stocks affects the cost per unit. 7. Most important aspect Contribution per unit. Net profit per unit
- 7. 8. Purpose To showforth the emphasis of contribution in product cost. To show forth the accuracy and fair treatment of product cost. 9. How it is presented? It is presented by outlining the total contribution. It is presented in the most conventional way for the purpose of financial and tax reporting.
- 8. Formulas used inMarginal Costing: Sales — Variable cost + Fixed cost + Profit Sales – Variable cost = Contribution Sales – Variable cost = Fixed cost + Profit Contribution = Fixed cost + Profit Contribution – Fixed cost = Profit
- 9. A variable costis a corporate expense that changes in proportion to production output. Variable costs increase or decrease depending on a company's production volume; they rise as production increases and fall as production decreases. Examples of variable costs include the costs of raw materials and packaging.
- 10. Profit planning isthe set of actions taken to achieve a targeted profit level. These actions involve the development of an interlocking set of budgets that roll up into a master budget
- 11. A break-even analysisis a financial tool which helps you to determine at what stage your company, or a new service or a product, will be profitable. In other words, it’s a financial calculation for determining the number of products or services a company should sell to cover its costs (particularly fixed costs). Break-even is a situation where you are neither making money nor losing money, but all your costs have been covered. Break-even analysis is useful in studying the relation between the variable cost, fixed cost and revenue.
- 13. Cost-volume-profit (CVP) analysisis used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including: Sales price per unit is constant. Variable costs per unit are constant. Total fixed costs are constant.