Post on 30-May-2018
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MANGEMENT ACCOUNTINGMANGEMENT ACCOUNTING
SUBMITTED TO
(MRS. KESKAR)
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GROUP MEMBERSGROUP MEMBERSNAME ROLL NO.
TORAL SANGHAVI 111
BHAGYASHRI BHOIR 112
VARSHA ADHAV 113
YASHASWINI WALANJ 114
GARGEE MOREKAR 115
NEHA KHANDEKAR 116
JAYKISHAN SAISWANI 118
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MARGINAL COSTINGMARGINAL COSTING
Marginal Costing Is Defined By ICMA As TheAscertainment Of Marginal Cost And Of The
Effects On Profits Of Changes In Volume OrType Of Output By Differentiating Between FixedCost And Variable Cost.
Marginal Costing Is Not A Distinct System OfCosting; But A Technique Of Presentation OfCosting Information For Finding Out The EffectsOr Profits Because Of Changes In Volume OrType Of Output.
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MARGINAL COSTMARGINAL COST Marginal Cost Is Defined By ICMA As The
Amount At Any Given Volume Of Output By
Which Aggregate Cost Are Changed If TheVolume Of Output Is Increased Or DecreasedBy 1 Unit.
It Is The Cost Incurred For Producing 1
Additional Unit. When The Output IsIncreased By 1 Unit The Total Cost AlsoIncreases. This Additional Increase In TotalCost Because Of Production Of 1 Unit IsKnown As Marginal Cost.
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FEATURES OF MARGINALFEATURES OF MARGINAL
COSTINGCOSTING All Costs Are Categorized Into Fixed And Variable
Costs.
Fixed Costs Are Considered Period Costs And AreNot Included In Product Cost .
Stock Of Work-in-progress And Finished Goods AreValued At Marginal Cost Of Production.
In Marginal Process Costing, Products Are
Transferred From One Process To Another AreValued At Marginal Costs Only.
Prices Are Determined With Reference To MarginalCost And Contribution Margin.
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THE PRINCIPLES OFTHE PRINCIPLES OF
MARGINAL COSTINGMARGINAL COSTING For Any Given Period Of Time, Fixed Costs
Will Be The Same, For Any Volume Of SalesAnd Production.
If The Volume Of Sales Falls By One Item,The Profit Will Fall By The Amount OfContribution Earned From The Item.
Profit Measurement Should Therefore Be
Based On An Analysis Of Total Contribution. When A Unit Of Product Is Made, The Extra
Costs Incurred In Its Manufacture Are TheVariable Production Costs.
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ADVANTAGES AND DISADVANTAGES OFADVANTAGES AND DISADVANTAGES OF
MARGINAL COSTINGMARGINAL COSTING
ADVANTAGES
Marginal Costing Is Simple To Understand
It Eliminates Large Balances Left In
Overhead Control Accounts
Practical Cost Control Is Greatly Facilitated.
It Helps In Short-term Profit Planning ByBreakeven And Profitability Analysis, Both
In Terms Of Quantity And Graphs.
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The separation of costs into fixed and variable isdifficult and sometimes gives misleading results.
Normal costing systems also apply overhead undernormal operating volume and this shows that noadvantage is gained by marginal costing.
Application of fixed overhead depends on estimates and
not on the actual and as such there may be under orover absorption of the same.
Control affected by means of budgetary control is alsoaccepted by many.
Disadvantages
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PRFORMA OF MARGINAL COSTINGPRFORMA OF MARGINAL COSTING
PATICULARS AMT. AMT.
SALES VALUE xx
LESS: VARIABLE COST
Direct material cost xx
Direct labour cost xx
Variable factory overhead xx
Variable selling & distribution
overhead
xx
CONTRIBUTION xx
LESS: FIXED COST
Fixed factory overhead xxAdministration overhead xx
Fixed selling and distribution
overhead
xx
PROFIT/LOSS xx
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APPLICATION OF MARGINALAPPLICATION OF MARGINAL
COSTINGCOSTING Marginal Costing techniques help management in
taking many strategic decisions such as:
Diversification of products
Fixation of selling prices Pricing in depression
Accepting additional orders
Pricing in case of exports
Selection of profitable product-mix Alternative methods of manufacture
Make or buy decision
Level of activity planning
Alternative course of actions
Selection of optimum volume & selling
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FORMULAS IN MARGINALFORMULAS IN MARGINAL
COSTINGCOSTING(1)
SALES = VC + FC + PROFIT
SALES = MC + CONTRIBUTION
Where,VC = Variable Cost
FC = Fixed Cost
MC = Marginal Cost
(2)
PROFIT VOLUME RATIO / CONTRIBUTION RATIOProfit Volume Ratio (P/V) = Contribution
Sales
= Contribution x 100
Sales
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(3)
PROFIT AT A GIVEN SALES VALUE
Contribution = Sales X P/V Ratio
Profit = Contribution Fixed Cost
(4)
SALES REQUIRED TO GENERATE A GIVENPROFIT
Sales Value (Rs.) = Fixed cost + Target ProfitP/V Ratio
Sales Units = Fixed Cost + Target profit
Contribution per Unit
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(5)Contribution
Contribution = sales variable cost
= fixed cost + profit / loss
(6)
Sales desired profit
(Fixed cost + desired profit) sales
Sales variable cost.
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RE
VE
NUE
STATE
ME
NT RATIORE
VE
NUE
STATE
ME
NT RATIO Revenue statement ratio are those ratio which
highlight the relationship between two revenue
statement items. The following five revenuestatement ratio are discussed in this.
Gross Profit Ratio
Operating Ratio
Expenses Ratio
Net Profit Ratio
Stock Turn Over Ratio
Net Operating Profit Ratio.