Sunday, 17 November 2019

Unit 11: Marginal Costing and Profit Planning


                          Unit 11: Marginal Costing and Profit Planning  

Marginal costing is one of the important tools of management not only to take decision, but also to fi x an appropriate price and to assess the level of profi tability.

Marginal cost is nothing, but a change occurred in the total cost due to small change in the quantity produced.

Absorption costing technique is also known by other names as “Full costing” or “Traditional costing”.

The cost-volume-profi t analysis is a tool to show the relationship between various ingredients of profi t planning.

The ratio or percentage of contribution margin to sales is known as P/V ratio.

The crucial step in this analysis is the determination of break-even point.

BEP is defi ned as the sales level at which the total revenue equals total cost.

Margin of safety is the difference between the actual sales and sales at break-even point.

Sales beyond break-even volume brings in profi ts.

BEP (Units): It is the level of units at which the fi rm neither incurs a loss nor earns profi t.

BEP (Volume): It is the level of sales in Rupees at which the fi rm neither incurs a loss nor earns profi t.

Contribution: It is an amount of balance available after the deduction of variable cost from the sales.

Fixed Cost: It is a cost which is fi xed or remains the same for irrespective level of production.

Marginal Cost: Change occurred in the cost of operations due to change in the level of production.

PV Ratio: Profi t volume ratio which is nothing but the ratio in between the contribution and sales.

Variable Cost: It varies along with the level of production.

No comments:

Post a comment