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P. 1
Unit 1

Unit 1

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Published by Sanjay Singh

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Published by: Sanjay Singh on Oct 16, 2011
Copyright:Attribution Non-commercial


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Unit 1: Marginal CostingAns1:
According to- The American Accounting Association,
Accounting includes the methods and concepts necessary for theeffective planning, for choosing alternative business actions and for
control through the evaluation and interpretation of performance.”
“Management Accounting is the process of id
entification,measurement, presentation, analysis, interpretation andcommunication of accounting information that assist the managementin planning , decision making, direction and control within theframework of fulfillment the organizational objectives.
 Ans2:Strategic Management Accounting has been defined as "A form of management accounting in which emphasis is placed on informationwhich relates to factors external to the firm, as well as non-financialinformation and internally generated information
 The emphasis was placed upon relative levels and trends in real costsand prices, volume, market share, cash flow and stewardship of theresources available to the business.Ans3:Absorption costing is a conventional technique of the asserting cost andprofit. It is practice under which all costs, weather fixed or variable, are
charged to operations or production process. So it is also known as “fullcosting” or “total costing” technique.
Ans4:Marginal costing is a specific technique of the cost analysis in whichcost information are presented in such a manner so that it may help themanagement in cost control and various managerial decisions.In this technique total cost is divided into two components i.e. fixedand variable. Marginal cost is the amount at any given volume of output by which aggregate costs are changed if the volume of output isincreased or decreased by one unit.Ans5:
Acostof labor,materialoroverheadthat changes according to thechangein thevolumeof production units. Combined withfixed costs,variablecosts make up thetotal costof production. While the total variable costchanges with increased production.In other words variable costs are those costs of marginalcost which fluctuates at every level of productionprocess, like wages, raw material, and power etc.Ans6:
Inpractice,allcostsvary over time and no cost is a purely fixed cost, theconceptof fixed costs is necessary inshort- termcost accounting.Firmswithhighfixed costs are significantly different from those with highvariable costs.In other words we can say that fixed costs are those costswhich cannot be changed according to the production level.So expense are fixed at all, like salary, warehouse rent,depreciation, interest, insurance etc.
Semi variable cost is an expense which contains both afixed costcomponent and avariable costcomponent. The fixed cost element shallbe a part of the cost that needs to be paid irrespective of the level of activity achieved by the entity. On the other hand the variablecomponent of the cost is payable proportionate to the level of activity.It shows similarities totelephonebills. One must pay line rental and ontop of that a price that depends on how heavy one is using the service.So it changes with output.Ques8.Contribution is the difference between sales and variable cost of sales.In other words, the excess of the sales over its variable cost is calledcontribution. It is also known as
“Contribution Margin” and Gross
Margin. It can also be explained that excess of sales over the variablecost which is available to cover fixed cost and to earn the profit. If theamount of contribution is less than fixed cost than it will be a position of loss to the firm.Ques9.It is the ratio of contribution to sale and is expressed generally in terms
of percentage. It is also known as “Contribution ratio”,“Contribution/Sales Ratio”
or Marginal Income Percentage.”
 P/V Ratio is one of the most important ratios for studying theprofitability of the firm. The concept of P/V ratio is also useful tocalculate the break-even point, the profit at a given volume of sales thesales volume required to earn a desired profit and volume of salesrequired to maintain the existing profit.
P/V Ratio = (Contribution
Sales * 100)

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