Absorption costing, marginal costing and break even analysis, Financial Accounting

Assignment Help:
  • Absorption costing is a cost accounting method that tries to charge all direct costs and all production costs of an organization to specific units of production. Managerial decisions cannot be taken with the help of absorption costing.

  • Marginal costing, also known as variable costing, takes into accounts only variable costs as product cost. By showing the variable cost and contribution for each product, marginal cost helps the management in taking appropriate decisions.

  • Marginal cost is the cost incurred on producing an additional unit. Contribution is nothing but the difference between the sales value and the marginal or variable cost of the product. This contribution covers the fixed cost and generates profit.

  • The profitability of the operation of a business can be known with the help of profit/volume ratio. It establishes the relationship between contribution and sales.

  • A break even point is a point at which a firm earns no profit and does not bear any loss. It is a point at which the total sales are equal to total costs. In other words, contribution is sufficient to cover only fixed cost.

  • CVP Analysis is useful for taking decisions like fixation of selling price, effect of change in price, alternative methods of production, alternative course of action etc.

  • The break even chart is primarily drawn to understand the relationship between the costs/sales and profit at various levels of activity. The main feature of the break even chart is that it shows the break even point and the profits and loss at different levels of activities. The profit-volume chart describes the profit and loss of business at different levels of sales. In other words, it is the representation of the facts in the break even chart.


Related Discussions:- Absorption costing, marginal costing and break even analysis

What is balance sheet, Q. What is Balance Sheet? Balance Sheet - Basic ...

Q. What is Balance Sheet? Balance Sheet - Basic FINANCIAL STATEMENT, generally accompanied by appropriate DISCLOSURES which describe the basis of ACCOUNTING used in its prepara

Expected net cash flows resulting from the digger, Sigma is thinking about ...

Sigma is thinking about purchasing a new clam digger for $14,000. The expected net cash flows resulting from the digger are $9,000 in year 1, $7,000 in year 2, $5,000 in year 3, an

Revenue Recognition, What are some critics by individuals and professional ...

What are some critics by individuals and professional bodies in this joint project?

Determine the term- understandability, Determine the term- Understandabilit...

Determine the term- Understandability Accounting reports must be expressed as clearly as possible and must be understood by those at whom the information is aimed.

Ademption-failure legacies and gift residue-executorship, Ademption If ...

Ademption If property which has been specifically bequeathed does not belong to the testator at the time of his death, or has been converted into property of a different kind,

Foreing branches-branches, FOREING BRANCHES The head office my set up a b...

FOREING BRANCHES The head office my set up a branch in a foreign  country. IAS 21 requires that the results of that  foreign branch to be translated into the local currency for t

Amortization of patents for year 2010, Ely purchased a patent (with a remai...

Ely purchased a patent (with a remaining legal life of ten years) from Backo on January 1, 2010 for $300,000. Ely expected to use the patent for five years. The carrying value on B

Illustration of corporate tax-income tax-financial statement, Illustration ...

Illustration of Corporate tax During the year ended31/12/2003, A Ltd. had estimated the corporation tax for the year to be £100,000. The amount was still outstanding as at 31/1

Prepare the income statement, Dillings Ltd is a wholesaler and distributor ...

Dillings Ltd is a wholesaler and distributor of catering of office equipment. The following list of balances was extracted from its books at 31 March 2004: The following ad

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd