Marginal Costing

It is the duty of every management to take judicious decision. The success or failure depends upon the process of decision-making. The successful operation of business activities, management has to take various decision regarding production and sale, make or buy, the amount of desired profit, the expansion or closure of any line or product. The above said purposes the data are collected and analyzed by the management.

Marginal costing is a technique used for deciding break-even point. The BEP is a point where cost and revenues are always equal. It is that point where no profit, no loss is seen. Marginal costing is a technique which deals with the effect of cost or profit of change in volume of output and sale.

Here the expenses are divided into fix cost and variable costs, the fixed costs remain the same on different level of output. Variable costs always go up or down in proportion to output.

In this chapter, an attempt has been made to explain the salient features of various aspects of marginal costs, such as how much to produce for no profit no loss, what is margin of safety, what is desired profit, what is effect of mixed or merger of plants etc?

So, to explain the complete chapter of Marginal Costing, we have prepared some questions and explained them with the help of examples.

Marginal Costing

Marginal Costing definition Marginal costing refers to the method of costing which is concerned with changes in costs resulting from changes in the volume or range of output and sales. Increase or decrease in total costs which are brought about by an increase or decrease in the volume of production and sale is known as …

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Q. 2. Define Contribution and Break-Even Point (BEP)

Answer Contribution: The term contribution refers to the excess of selling price over variable cost of a product. Thus, it is a difference between sale price and variable cost. Contribution (C) = Sales – Variable Cost or Fixed Cost + Profit Example When sale is $80,000 variable cost 40,000, fixed cost $30,000. Calculate contribution. Contribution …

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Q. 3. Define Cost Volume Profit (C.V.P), Profit Volume Ratio (PVR) and Margin of Safety (MOS).

Answer Cost Volume Profit (C. V. P.). Profit depends upon many factors, but most important is the cost of Manufacturer, volume of sales and selling price of the product. The three factors of cost, volume and profit are inter-connected and dependent on each other. Profit depends upon sales, slaes price depends upon cost, volume of …

Q. 3. Define Cost Volume Profit (C.V.P), Profit Volume Ratio (PVR) and Margin of Safety (MOS). Read More »

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