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…
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…
The technique of marginal costing is of immense use to the management in taking various decisions, as explained below: How much to produce? Marginal costing helps in finding out the level of output which is most profitable for running a concern. This, in turn, helps in utilising plant capacity in Read more…
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…
Break-even analysis is a specific method of presenting and studying the inner relationship between costs, volume and profits. (Hence, the name C-V-P Analysis). It is an important tool of financial analysis whereby the impact on profit of the changes in volume, price, costs and mix can be found out with Read more…
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…
The algebric expression of contribution is known as Marginal Cost Equation. It can be expressed thus: S – V = F + P S – V = C C = F + P and in case of loss C=F – L Where S= Sales, V= Variable Cost, C= Contribution, Read more…
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…
This is a technique of costing uses the concept `Marginal Cost’. Marginal cost can be defined as the change in the total cost of production as a result of a change in the production by one unit. Thus the marginal cost is nothing but a variable cost. The revenue arising Read more…
A cash flow statement is concerned only with the changes in cash position while funds flow analysis is concerned with changes in working capital position between two balance sheet dates. Cash flow analysis is a tool of short-term financial analysis while the funds flow analysis is comparatively a long-term one. Read more…