Smu Chapter 12 Mb0041
Financial and Management Accounting
Unit 12
Unit 12
Marginal Costing and Break – Even Analysis
Structure: 12.1 Introduction Objectives 12.2 Marginal Costing 12.3 Assumptions of Marginal Costing 12.4 Differences Between Absorption Costing and Marginal Costing 12.5 Marginal Cost 12.6 Contribution 12.7 Cost Volume Profit (CVP) Analysis 12.8 Profit Volume Ratio (MCSR or C/S Ratio) 12.9 Break-Even Analysis 12.10 Break-Even Chart 12.11 Target Profit 12.12 Margin of Safety (MOS) 12.13 Applications of Marginal Costing 12.14 Limitations of Marginal Costing 12.15 Solved Problems 12.16 Summary 12.17 Glossary 12.18 Terminal Questions 12.19 Answers 12.20 Case Study
12.1 Introduction
In the previous unit we learnt the meaning, classification, elements, and statement of cost. We also analysed the objective, methods, and techniques of costing. Cost control is as important as cost ascertainment. If costs are not controlled, the company will not be able to make good profits and its survival becomes difficult. There are many techniques of cost control. Of them, three techniques are most important. They are marginal costing, budgetary control, and standard
Sikkim Manipal University Page No.: 297
Financial and Management Accounting
Unit 12
costing. In this unit and the next unit we shall learn about the technique of marginal costing and its applications. We shall also analyse the techniques of budgetary control and standard costing in unit 14 and unit 15 respectively. Objectives: After studying this unit, you should be able to: explain marginal costing explain the assumptions of marginal costing differentiate between marginal costing and absorption costing explain the principles of CVP analysis and break-even analysis apply the principles of business decisions CVP analysis and break-even analysis in
12.2. Marginal Costing
Marginal costing is defined as “The ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by
Unit 12
Unit 12
Marginal Costing and Break – Even Analysis
Structure: 12.1 Introduction Objectives 12.2 Marginal Costing 12.3 Assumptions of Marginal Costing 12.4 Differences Between Absorption Costing and Marginal Costing 12.5 Marginal Cost 12.6 Contribution 12.7 Cost Volume Profit (CVP) Analysis 12.8 Profit Volume Ratio (MCSR or C/S Ratio) 12.9 Break-Even Analysis 12.10 Break-Even Chart 12.11 Target Profit 12.12 Margin of Safety (MOS) 12.13 Applications of Marginal Costing 12.14 Limitations of Marginal Costing 12.15 Solved Problems 12.16 Summary 12.17 Glossary 12.18 Terminal Questions 12.19 Answers 12.20 Case Study
12.1 Introduction
In the previous unit we learnt the meaning, classification, elements, and statement of cost. We also analysed the objective, methods, and techniques of costing. Cost control is as important as cost ascertainment. If costs are not controlled, the company will not be able to make good profits and its survival becomes difficult. There are many techniques of cost control. Of them, three techniques are most important. They are marginal costing, budgetary control, and standard
Sikkim Manipal University Page No.: 297
Financial and Management Accounting
Unit 12
costing. In this unit and the next unit we shall learn about the technique of marginal costing and its applications. We shall also analyse the techniques of budgetary control and standard costing in unit 14 and unit 15 respectively. Objectives: After studying this unit, you should be able to: explain marginal costing explain the assumptions of marginal costing differentiate between marginal costing and absorption costing explain the principles of CVP analysis and break-even analysis apply the principles of business decisions CVP analysis and break-even analysis in
12.2. Marginal Costing
Marginal costing is defined as “The ascertainment of marginal cost and of the effect on profit of changes in volume or type of output by
References: Raman, B. S., Management Accounting, United Publishers Khan and Jain, Management Accounting 4/e, TMH Drury, C., Management and Cost Accounting 6/e, Cengage Learning Dr. Lal, J., Accounting for Management, HPH E-Reference: www.drury-online.com – retrieved on 25th December2011 Sikkim Manipal University Page No.: 323