Course Hero Logo

That identifies the activities that a firm performs

Course Hero uses AI to attempt to automatically extract content from documents to surface to you and others so you can study better, e.g., in search results, to enrich docs, and more. This preview shows page 14 - 16 out of 21 pages.

that identifies the activities that a firmperforms and then assigns indirect costs to products. An activity-based costing systemrecognizes the relationship between costs, activities and products, and through thisrelationship, it assigns indirect costs to products less arbitrarily than traditional methods.1.6.3 Marginal CostingMarginal Costing is ascertainment of the marginal cost which varies directly with the volumeof production by differentiating between fixed costs and variable costs and finallyascertainingitseffectonprofit.Thebasicassumptionsmadebymarginalcostingarefollowing:Total variable cost is directly proportion to the level of activity. However, variable cost perunit remains constant at all the levels of activities. Per unit selling price remains constant atalllevelsofactivities.Alltheitemsproducedbytheorganisationaresoldoff.FeaturesofMarginalcosting:Itisamethodofrecodingcostsandreportingprofits.It involves ascertaining marginal costs which is the difference of fixed cost and variable cost.The operating costs are differentiated into fixed costs and variable costs. Semi variable costsare also divided in the individual components of fixed cost and variable cost.Fixed costs which remain constant regardless of the volume of production do not find placein the product cost determination and inventory valuation. Fixed costs are treated as period9
charge and are written off to the profit and loss account in the period incurred.Only variable costs are taken into consideration while computing the product cost.Pricesofproductsarebasedonvariablecostonly.Marginal contribution decides the profitability of the products.1.6.4 Cost Volume ProfitCost-volume profit (CVP) analysis is based upon determining thebreakevenpointof cost andvolume of goods and can be useful for managers making short-term economic decisions.Cost-volume profit analysis makes several assumptions in order to be relevant including thatthe sales price,fixedcostsandvariablecostper unit are constant. Running this analysisinvolves using several equations using price, cost and other variables and plotting them outon an economic graph.TASK 21.7 Planning tools in management accountingExplain the advantages and disadvantages of diverse types of planning tools used forbudgetary control.

Upload your study docs or become a

Course Hero member to access this document

Upload your study docs or become a

Course Hero member to access this document

End of preview. Want to read all 21 pages?

Upload your study docs or become a

Course Hero member to access this document

Term
Fall
Professor
N/A
Tags
Finance, Management Accounting

Newly uploaded documents

Show More

Newly uploaded documents

Show More

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture