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

Determine the present value of the bonds payable, Mason Co. issued $860,000...

Mason Co. issued $860,000 of 5 year, 13% with interest payable semiannually, at a market (efffective) interest rate of 12% Determine the present value of the bonds payable, using t

Identify the various prices for job, Identify the various prices for job ...

Identify the various prices for job To identify the various prices for job, there are numerous points to be considered, including: ?How many garages shall we visit? ?What

.branch accounting., speciman of accounts preparation in stock and debtor...

speciman of accounts preparation in stock and debtor system.

Strengths and weaknesses of capital asset pricing model, Q. Strengths and W...

Q. Strengths and Weaknesses of Capital asset pricing model? Strengths - Gives a risk adjusted discount rate precise to the project's activities. - Books of betas are r

Estimate comparative advantage, The only two countries in the world, Alpha ...

The only two countries in the world, Alpha and Omega, face the following production possibilities frontiers (all units measured in tons). Alpha's Production PossibilitiesFrontier

Calculate return on invested capital, Five years ago Ramon Millan quit his ...

Five years ago Ramon Millan quit his job as an associate at a large law firm and opened a burger joint in Malibu. His innovative use of aged blue cheeses and specialty sauces resul

Effect of receiving order, Effect of receiving order The consequences o...

Effect of receiving order The consequences of the making of the receiving order are: The debtor retains ownership, but loses possession and control of his property; Th

What are the u.s. tax consequences of this liquidation for w, 1. Finco is a...

1. Finco is a wholly owned Finnish manufacturing subsidiary of Winco, a domestic corporation that manufactures and markets residential window products throughout the world. Winco h

Temporary-timing differences-financial statement , Temporary or Timing diff...

Temporary or Timing differences Temporary/timing differences relate to those items that are adjusted in the current period and are again adjusted in subsequent financial period

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