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

Bankruptcy accounts for individuals and partnerships, BANKRUPTCY ACCOUNTS F...

BANKRUPTCY ACCOUNTS FOR INDIVIDUALS AND PARTNERSHIPS These include a statement of affairs and deficiency account. A statement of affairs takes the following form: v\:*

Cost of Loan, Given information: Offered a $20 million commercial loan pri...

Given information: Offered a $20 million commercial loan priced using a 3month LIBOR index+100bp. After some preliminary research, using a money center bank''s swap trading desk

Invoices before Inventory, How should I handle Booking an invoice in one mo...

How should I handle Booking an invoice in one month for Raw material that has not been received until the following month?

Budgeted purification fixed, XYZ Municipality purifies water before it ente...

XYZ Municipality purifies water before it enters the reticulation network. There are presently 3 purification processes available to the municipality. These processes sre referred

Define the 401 plan, Q. Define the 401 Plan? 401(k) Plan - EMPLOYEE BEN...

Q. Define the 401 Plan? 401(k) Plan - EMPLOYEE BENEFIT PLAN authorized by INTERNAL REVENUE CODE section 401(k), whereby an employer establishes an account for every participati

The paper Contemporary Issues in International Accounting, Requirements: P...

Requirements: Part I Access the IFRS and the Generally Accepted Accounting Principles (GAAP) of your country. a. Note ten differences between the two sets of GAAP. Part II Ac

Bill Receivable, What is the function of bill receivable? What is the meani...

What is the function of bill receivable? What is the meaning of bill receivable?

Ticket Id - EM131058373M27, hello, i have got my answer, but i don''t know ...

hello, i have got my answer, but i don''t know the PART C why doesn''t calculate "working capital: 60000"?????? can not find match number in the solution table

Financial Statement Analysis Group Project 2, Financial Statement Analysis ...

Financial Statement Analysis Group Project 2 ACCT3303 Spring 2013 Due Date: May 5 (by the end of the day) The specific purposes of this project are: 1. Apply to actual companies th

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