Marginal Costing Dr. Shubhra Product Costing There are mainly two techniques of product costing and income determinationAbsorption Costing: This is a total cost technique under which total cost (i.e., fixed cost as well as variable cost) is charged as production cost. In other words, in absorption costing, all manufacturing costs are absorbed in the cost of the products produced. Marginal Costing: An alternative to absorption costing is marginal costing, also known as ‘variable costing’
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Analysis of cost data technique: CVP ANALYSIS OR COST VOLUME PROFIT ANALYSIS CVP a name itself explains that it is an analysis of Cost with reference to sales volume and profit (i.e. how much change is occurred in profit with due to cost and volume). CVP is an analysis that determines the company about the profitability by defining the cost-effective combination of costs (fixed cost and variable cost) and sales volume and price. (John Freedman, 2015) The basic formula for this relationship
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numbers, I = 3x1 + 4x2 – 60,000 (x1,x2 > 0) This makes it clear that instead of a break-even volume, there are virtually infinite x1, x2 combinations (i.e., product mixes) that will make I = 0 (or make I = any amount). Graphically, we have a series of“isoprofit” lines, one line for each value of I, the slope of which is a function of the relative per-unit contributions. The isoprofit line for I = 0 shows all break-even product mixes. (See Exhibit A, above.) The instructor can push to this point, whether
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Classification…………………………………………………………………2 Cost Volume Profit analysis……………………………………………………….2 Contribution Margin……………………………………………………………….2 Gross Margin and Contribution Margin…………………………………………...3 CVP Relationship in Graphic Form……………………………………………….3 CM Ratio. …………………………………………………………………………3 Application of CVP Concepts……………………………………………………..4 Importance of CM…………………………………………………………………4 Break-even Analysis………………………………………………………………4 Target Profit Analysis…………………………………………………………….5 The Margin of Safety……………………………………………………………
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Chapter 11: Cost Behavior and Cost-Volume-Profit Analysis Chapter Contents Book Title: Survey of Accounting Printed By: Jean Mette (jeanlucmette@gmail.com) © 2015, 2013 Cengage Learning, Cengage Learning Chapter 11 Cot ehavior and Cot-Volume-Profit Anali Chapter Introduction 11-1 Cost Behavior 11-1a Variable Costs 11-1b Fixed Costs 11-1c Mixed Costs 11-1d Summary of Cost Behavior Concepts 11-2 Cost-Volume-Profit Relationships 11-2a Contribution Margin 11-2b Contribution Margin
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CHAPTER 26 Marginal Costing and Cost Volume Profit Analysis Meaning Marginal Cost: The tenn Marginal Cost refers to the amount at any given volume of output by which the aggregate costs are charged if the volume of output is changed by one unit. Accordingly, it means that the added or additional cost of an extra unit of output. Marginal cost may also be defined as the "cost of producing one additional unit of product." Thus, the concept marginal cost indicates wherever there is a change in the
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Case Study Analysis : Bill French Based on Break Even Point INTRODUCTION * Bill French was a Staff Accountant in Duo-Products Group. * He used to report directly to his boss, Wes Davidson(Comptroller). * He wanted to do use Break-even analysis for the planning procedures, which was first of its kind for the Duo-Products Group. * Basically what French had done was to determine the level at which the company must operate in order to break even. * As he put it, 1. The company
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Table of Contents Issues 1 Facts 1 Analysis 2 Conclusion/Recommendations 4 References/Bibliography 5 Issues 1. What are the assumptions implicit in Bill French’s determination of his company’s break-even point? 2. On the basis of French’s revised information, what does next year look like: a) What is the break-even point? b) What level of operations must be achieved to pay the extra dividend, ignoring union demands? c) What level of operations must be achieved to meet the
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SUMMARY BREAK – EVEN • DEFINITION • USES OF B/E • BASIC CALCULATIONS • CONTRIBUTION • CALCULATING B/E POINT • B/E CHARTS • B/E ANALYSIS & EVALUATION • EXAMINERS TIPS NAME: ______________________________ TUTOR GROUP: _____________________ BREAK-EVEN ANALYSIS DEFINITION: - The level of output at which business sales provide just enough revenue to cover all the costs of production. - At the B/E level of output, a business has made NO PROFIT. WHY USE BREAK – EVEN
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Duo-Products Corporation. He was reporting to Wes Davidson and had been doing routine types of analytical work. In an informal manager’s meeting, Davidson invited Bill French to attend. French choose to present break-even data to determine the level at which the company must operate in order to break-even. During the meeting, French was challenged and questioned because his presentation failed to consider some aspects of the company’s operation such plans for expansion in sales and production, the product
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