Mangement Accounting

8/9/2019 Mangement Accounting

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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.

Mangement Accounting

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