Page 276 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 12: Marginal Costing and Profit Planning

The crucial step in this analysis is the determination of break-even point. Notes
BEP is defined as the sales level at which the total revenue equals total cost.

12.10 Keywords

BEP (Units): It is the level of units at which the firm neither incurs a loss nor earns profit.
BEP (Volume): It is the level of sales in Rupees at which the firm neither incurs a loss nor earns
profit.
Contribution: It is an amount of balance available after the deduction of variable cost from the
sales.
Marginal Cost: Change occurred in the cost of operations due to change in the level of production.
PV Ratio: Profit volume ration which is nothing but the ratio in between the contribution and
sales.
Variable Cost: It varies along with the level of production.

12.11 Self Assessment

Fill in the blanks:
1. ............................... technique is also known by other names as "Full costing" or "Traditional
costing".
2. ............................... is the cost nothing but a change occurred in the total cost due to changes
taken place on the level of production i.e either an increase/decrease by one unit of
product.
3. The ........................................ helps management in finding out the relationship of costs and
revenues to profit.
4. The ratio or percentage of contribution margin to sales is known as ................................
5. Under marginal Cost pricing, selling price is determined by adding a .......................... on
total variable costs.
6. The ........................ analysis is a tool to show the relationship between various ingredients
of profit planning.

7. ........................ 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.
State the following are true or false:

8. P/V ratio = Marginal contribution/Sales
9. Lower the P/V ratio more will be the profit and higher the P/V ratio, lesser will be the
profit.

10. Break even analysis examines the relationship between the total revenue, total costs and
total profits of the firm at various levels of output.
11. Break even point is that volume of sales where the total costs is higher than the total
revenue.

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