Cost Accounting

Limitations Of Marginal Costing

1.Difficulty in Classification: In marginal costing, costs are segregated into fixed and variable. In actual practice, this classification scheme proves to be superfluous in that, certain costs may be partly fixed and partly variable and certain other costs may have no relation to volume of output or even with the Read more…

By Anagha Sanil, ago
Cost Accounting

Application Of Marginal Costing

1. Profit Planning There are four important ways of improving the profit performance of a business: (i) increasing the volume, (ii) increasing the selling price, (iii) decreasing variable cost, and (iv) decreasing fixed costs. Profit planning is the planning of future operations so as to attain maximum profit. The contribution Read more…

By Anagha Sanil, ago
Cost Accounting

Margin of Safety

Margin of safety can be derived by deducting sales at break even point from total sales . Further down break-even point indicates larger margin of safety. Margin of safety can also be expressed as a percentage of total sales. The formula is:             Margin of Safety=(Total Sales – Sales at Read more…

By Anagha Sanil, ago
Cost Accounting

Profit Volume Ratio (P/V Ratio)

P/V Ratio reflects the profitability of a business. It shows the relationship between contribution and sales and is usually expressed in percentage. Marginal-income ratio, contribution-sales ratio and variable-profit ratio are few other names of P/V ratio to mention. P/V Ratio thus is the ratio of contribution to sales, and is Read more…

By Anagha Sanil, ago
Finance

Contribution

The difference between the selling price or sales and variable cost per unit or total variable cost (or marginal cost) is known as `Contribution’ or `Gross Margin’. It may be considered as some sort of fund from out of which all fixed costs are met. The difference between contribution and Read more…

By Anagha Sanil, ago