Page 286 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 13: Decision Involving Alternative Choices

13.6 Summary Notes

Marginal costing technique helps in determining the most profitable relationship between
costs, prices and volume of business.

Following are the important areas of decision-making or applications of marginal costing:
Fixation of Price,
Decision to Make or Buy,

Selection of a Profitable Product Mix,
Decision to Accept a Bulk Order,
Closure of a Department or Discontinuing a Product,
Maintaining a Desired Level of Profit, and
Evaluation of Performance.

13.7 Keywords

Decision-making: Decision-making describes the process by which a course of action is selected
as the way to deal with a specific problem.
Desired Profit: It is a profit level desired by the firm to earn at the given level of sales volume.

Fixed Cost: It is a cost which is fixed or remains the same for irrespective level of production.
Key Factor: Factor of influence on the component of contribution.
Marginal Cost: Change occurred in the cost of operations due to change in the level of production.

13.8 Self Assessment

Choose the appropriate answer:
1. If the supply of the material is considered to be scared in the market for two different units
of production of ABC Ltd. How the worth of the units of production could be studied
through Key factor analysis
(a) Contribution per unit (b) Contribution per labour
(c) Contribution per hour (d) None of the above

2. While accepting export order, which component of influence should not be taken into
consideration:
(a) Direct material (b) Direct expenses

(c) Direct labour (d) Fixed cost
3. If Licon Co Ltd. wants to induct a product B along with the existing product line, what
would be the deciding factor to undertake or reject

(a) Composite contribution (b) Fixed cost
(c) Contribution margin per unit (d) None of the above

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