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    Marginal Costing and Cost Volume Profit Analysis

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    priyanka choudhary
    Module 4 discusses marginal costing and cost-volume-profit analysis. It defines marginal costing as the additional cost of producing an additional unit. Marginal cost includes any extra costs needed to produce the next unit, such as building a new factory. It also discusses conversion cost as the cost of transforming raw materials into finished goods, including direct labor, expenses, and factory overheads. Relevant costs are future costs that will change due to decisions. The document provides an example to calculate sales needed for a desired profit level. It determines contribution margin, break-even point, and phones that must be sold to earn a $7,500 profit.

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    Marginal Costing and Cost Volume Profit Analysis

    Uploaded by

    priyanka choudhary
    27 views16 pages
    Module 4 discusses marginal costing and cost-volume-profit analysis. It defines marginal costing as the additional cost of producing an additional unit. Marginal cost includes any extra costs needed to produce the next unit, such as building a new factory. It also discusses conversion cost as the cost of transforming raw materials into finished goods, including direct labor, expenses, and factory overheads. Relevant costs are future costs that will change due to decisions. The document provides an example to calculate sales needed for a desired profit level. It determines contribution margin, break-even point, and phones that must be sold to earn a $7,500 profit.

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    Module 4

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    Module 4 discusses marginal costing and cost-volume-profit analysis. It defines marginal costing as the additional cost of producing an additional unit. Marginal cost includes any extra costs needed to produce the next unit, such as building a new factory. It also discusses conversion cost as the cost of transforming raw materials into finished goods, including direct labor, expenses, and factory overheads. Relevant costs are future costs that will change due to decisions. The document provides an example to calculate sales needed for a desired profit level. It determines contribution margin, break-even point, and phones that must be sold to earn a $7,500 profit.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    27 views16 pages

    Marginal Costing and Cost Volume Profit Analysis

    Uploaded by

    priyanka choudhary
    Module 4 discusses marginal costing and cost-volume-profit analysis. It defines marginal costing as the additional cost of producing an additional unit. Marginal cost includes any extra costs needed to produce the next unit, such as building a new factory. It also discusses conversion cost as the cost of transforming raw materials into finished goods, including direct labor, expenses, and factory overheads. Relevant costs are future costs that will change due to decisions. The document provides an example to calculate sales needed for a desired profit level. It determines contribution margin, break-even point, and phones that must be sold to earn a $7,500 profit.

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    Module 4:

    Marginal Costing and Cost Volume Profit


    Analysis

    Cost and Management Accounting


    Marginal Costing
    • It is the additional cost of producing an
    additional unit
    • In general terms, marginal cost at each level of
    production includes any additional costs
    required to produce the next unit. For
    example, if producing additional vehicles
    requires building a new factory, the marginal
    cost of the extra vehicles includes the cost of
    the new factory.
    It is the additional cost
    Marginal of producing an
    cost additional unit

    It is the cost of converting raw Conversion


    materials into finished goods. cost
    It is the total of direct labour, direct
    expenses, and factory overheads.

    Costs which have direct influence on


    the decision making are called
    relevant relevant costs.
    cost These are future costs that will
    change due to managerial decision.
    KEY FACTOR
    Key factor is nothing but a limiting factor or deterring factor on sales
    volume, production, labour, materials and so on.

    The limiting factor normally differs from one to another

    Volume of sales- the limiting factor is that production of required number of


    articles

    Volume of production- the limiting factors are as follows in adequate supply


    of raw materials, labor, inability to sell the produced articles and so on
    The limiting factors are studied in the lights of the contribution. The limiting
    factor is bearing the inverse relationship with the volume of contribution. To
    study the worth of the business proposals among the limiting factors, the
    contribution is considered as a parameter to rank them one after another.
    Calculation of sales for desired profit and numerical on the same.

    Example of Targeted Profit

    Berhannan’s Cellular sells phones for $100. The unit variable cost per phone is $50
    plus a selling commission of 10%. Fixed manufacturing costs total $1,250 per
    month, while fixed selling and administrative costs total $2,500.

    Questions and Answers

    A. What is the contribution margin per phone?

    CM per phone = $100 - $50 - 0.1($100) = $40

    B. What is the breakeven point in phones?

    N = Breakeven in phones

    N = $3,750 / $40 = 93.75 phones


    Breakeven Point = 94 phones

    C. How many phones must be sold to earn a targeted profit of $7,500?

    N = Phones to be sold

    N = $11,250 / $40 = 281.25 phones To achieve target profit: Must sell 282
    phones

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