Page 220 - DCOM302_MANAGEMENT_ACCOUNTING

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Unit 11: Marginal Costing and Profi t Planning

Unit 11: Marginal Costing and Profi t Planning Notes

CONTENTS

Objectives
Introduction
11.1 Absorption Costing
11.2 Marginal Costing
11.3 Costs-Volume Profi t Analysis

11.3.1 Objectives of Cost-Volume-Profi t Analysis
11.3.2 Profit-Volume (P/V) Ratio

11.4 Break-even Point
11.4.1 Uses of Break-even Analysis

11.4.2 Assumptions of Break-even Analysis
11.4.3 Advantages of Break-even Analysis
11.4.4 Drawbacks of Break-even Analysis (BEA)
11.5 Use of Cost Data in Decision Making
11.5.1 Break-even Chart

11.5.2 Algebraic Method
11.6 Summary
11.7 Keywords
11.8 Review Questions

11.9 Further Readings

Objectives

After studying this unit, you will be able to:

Define absorption costing
Compute marginal costing and CVP analysis
Illustrate break-even analysis

Know the use of cost data in decision making
Introduction

It is one of the premier tools of management not only to take decisions but also to fi x an appropriate
price and to assess the level of profi tability of the products/services. This is a only costing tool
demarcates the fixed cost from the variable cost of the product/service in order to guide the

firm to know the minimal point of sales to equate the cost of production. It is a tool of analysis

highlighting the relationship in between the cost, volume of sales and profitability of the fi rm.

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