File Name: marginal costing and break even analysis .zip
Let us make an in-depth study of the meaning, assumptions, uses and limitations of break-even point. Break-even point represents that volume of production where total costs equal to total sales revenue resulting into a no-profit no-loss situation. If output of any product falls below that point there is loss; and if output exceeds that point there is profit.
It helps in determining the point of production at which revenue equals the costs. Break-even analysis is also called as profit contribution analysis. According to Charles T. It is the point of zero profit and zero loss. The important aspect of understanding break-even analysis is the break-even point at which there is no net loss or gain of an organization as expenses equals revenue. On the basis of these two conditions, there are a number of methods for performing break-even analysis.
In economics , marginal cost is the change in the total cost that arises when the quantity produced is incremented by one unit; that is, it is the cost of producing one more unit of a good. At each level of production and time period being considered, marginal costs include all costs that vary with the level of production, whereas other costs that do not vary with production are fixed and thus have no marginal cost. For example, the marginal cost of producing an automobile will generally include the costs of labor and parts needed for the additional automobile but not the fixed costs of the factory that have already been incurred. In practice, marginal analysis is segregated into short and long-run cases, so that, over the long run, all costs including fixed costs become marginal. Where there are economies of scale, prices set at marginal cost will fail to cover total costs, thus requiring a subsidy. Marginal cost pricing is not a matter of merely lowering the general level of prices with the aid of a subsidy; with or without subsidy it calls for a drastic restructuring of pricing practices, with opportunities for very substantial improvements in efficiency at critical points.
Every business organization works to maximize its profits. With the help of CVP analysis, the management studies the co-relation of profit and the level of production. CVP analysis is concerned with the level of activity where total sales equals the total cost and it is called as the break-even point. In other words, we study the sales value, cost and profit at different levels of production. CVP analysis highlights the relationship between the cost, the sales value, and the profit. Sales volume does not affect the selling price of the product. We can assume the selling price as constant.
Marginal Costing and Cost Volume Profit Analysis Meaning Marginal Cost: The tenn Marginal Cost refers to the amount at any given volume of output by which the aggregate costs are charged if the volume of output is changed by one unit. Accordingly, it means that the added or additional cost of an extra unit of output. Marginal cost may also be defined as the "cost of producing one additional unit of product. It is concerned with the changes in variable costs. Fixed cost is treated as a period cost and is transferred to Profit and Loss Account.
The break-even analysis technique takes the concept of marginal costing one stage further. It is a technique used to determine the minimum volume of sales.
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What Is the Break-Even Point? Break-Even Point Examples.
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Management accounting information system pdf basic mathematics for electricity and electronics 8th edition pdfLedicia L. 17.03.2021 at 00:21
Marginal Costing is not a method of costing like job, batch or contract costing. Break-even analysis is a widely used technique to study cost-volume-profit.FaraГіn R. 19.03.2021 at 13:11
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