Page 275 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes If the management now wants to earn a target profit of 50,000, then we get new levels of Q =
B
321,500 and % B = 15,625. If we add this target profit to the fixed costs we see that the break even
levels of all three factors we increased. The information in this example could be extended so as
to make provisions for such factors as payment of taxes or for payment of any other fixed
obligations that might be associated with the fixed costs (such as interest payments on bonds or
debentures used to finance an investment).

12.7 Costing Techniques

The following are the various techniques of costing, which are nothing but vital tools of
ascertaining costs:
1 Uniform Costing: It is the use of same costing principles and practices by several
undertakings for common control and comparison of costs.
2. Marginal Costing: It is another tool of costing, by studying the difference in between the
fixed and variable cost in order to determine the influence of change in the level of output
on the cost per unit.
3. Historical Costing: It is another technique of costing through which the costs of the yester
horizon are ascertained.
4. Direct Costing: It is the practice of charging all direct variable and fixed costs which are in
relation with the operations, processes or products by leaving all other costs which are
normally written off against the profits.
5. Absorption Costing: It is unlike the marginal costing technique, includes the fixed cost of
operations along with the variable cost of production.
6. Standard Costing: It is another tool of costing which normally facilitates the firm to
determine the deviation in between the actual and standards in order to exercise the
control of deviations through corrective measures.

12.8 Decisions Involving Alternative Choices

The need for a decision arises in business because a manager is faced with a problem and
alternative courses of action are available. A manager have to take different decisions like make
or buy, continue or shut down, etc. to make the maximum profit. In deciding which option to
choose he will need all the information which is relevant to his decision; and he must have some
criterion on the basis of which he can choose the best alternative. Some of the factors affecting
the decision may not be expressed in monetary value. Hence, the manager will have to make
‘qualitative’ judgements, e.g. in deciding which of two personnel should be promoted to a
managerial position. A ‘quantitative’ decision, on the other hand, is possible when the various
factors, and relationships between them, are measurable.

12.9 Summary

Marginal costing is one of the important tools of management not only to take decision,
but also to fix an appropriate price and to assess the level of profitability.
Marginal cost is nothing, but a change occurred in the total cost due to small change in the
quantity produced.
The cost-volume-profit analysis is a tool to show the relationship between various
ingredients of profit planning.

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