Page 89 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting Pooja, Lovely Professional University

Notes Unit 6: Marginal Costing and Absorption Costing

CONTENTS
Objectives
Introduction
6.1 Meaning and Definition of Marginal Costing

6.2 Contribution
6.2.1 Method of Difference
6.2.2 Method of Coverages
6.3 Absorption Costing
6.3.1 Income Determination under Marginal and Absorption Costing
6.3.2 Absorption Costing and Marginal Costing Compared

6.4 Cost-Volume-Profit (CVP) Analysis

6.5 Profit-Volume (P/V) Ratio
6.6 Break Even Point
6.6.1 Uses of Break-even Analysis
6.6.2 Assumptions of Break-even Analysis
6.6.3 Advantages of Break-even Analysis
6.6.4 Drawbacks of Break-even Analysis (BEA)
6.7 Methods Decisions Involving Alternative Choices
6.7.1 Break Even Chart
6.7.2 Algebraic Method
6.8 Margin of Safety
6.9 Application of Marginal Costing
6.9.1 Determination of Sales Mix
6.9.2 Make or Buy Decisions
6.9.3 Own or Hire
6.9.4 Shut Down or Continue
6.10 Summary
6.11 Keywords
6.12 Review Questions
6.13 Further Readings

Objectives

After studying this unit, you will be able to:

Define marginal and absorption costing
Construct CVP analysis
Compute P/V ratio and Break Even Point (BEP)
Calculate the margin of safety
Illustrate the applications of marginal costing

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