222

$show=home

Welcome to Accounting Education

The Free Online University with 3400+ Accounting contents as study material which can watch, read and learn anyone, anywhere.

Start your studies

Latest Contents$type=three$count=6$author=hide$comment=hide$label=hide$s=hide$show=home$date=hide

$show=home

Why Accounting Education Important


Free
Simple
Have Quality Study Material
Taught by Expert

Connect Vinod Kumar (Educator)

Why Accounting Education Volunteer


Free training
It's educational
It's fun
It helps others

Become Volunteer Teacher

$hide=page

Marginal Costing - FAQ

Marginal costing is one of important technique of cost accounting to control the cost. It is used every type of company who is interested to reduce cost and increase profitability. Marginal costing is also included in all professional accounting courses. That is the reason, you should watch following frequently asked questions (FAQ) of marginal costing.

Q: - 1. What is marginal costing?

Ans. Marginal costing means to control the cost by calculating all variable cost and deduct it from sale. With this, we find a special reserve that is called contribution. This contribution can be used to pay fixed cost and rest will be our profit. With this we decide whether we have to produce new product or not, whether we have to diversify of producing of our product or not. Marginal costing is one of best technique, with this, we can proper use of cost-volume- profitability analysis because PV ratio is just relationship of contribution and sales. By calculating it, we can compare two products PV ratio.  Products having high PV ratio will be prefer to produce instead of producing products having  low PV ratio.


Q:- 2. What is marginal Costing formula?

Ans. Following are the main formulae which are used in marginal costing.

Marginal Cost : Effect on total cost by producing one more or less unit of product.

Marginal Costing  Equation

Contribution = Sales - Variable Cost

or
Contribution = Fixed Cost +/- Profit

If both side will equal, then

Contribution = contribution

Sales - Variable cost = Fixed Cost +/- Profit

S - V = F + P

Profit Volume Ratio =  Contribution / Sale

PV Ratio = Fixed Cost  +/- Profit / Sale or F- P / S

or
PV Ratio = Sales - Variable Cost / Sale or S-V / S


Q:- 4. What is difference between marginal costing and absorption costing?

Ans. 1. # Absorption costing is a costing system which treats all costs of production as product costs, regardless weather they are variable or fixed. This would usually include direct materials, direct labor and variable portion of manufacturing overhead. Fixed manufacturing cost is not treated as a product costs under marginal costing.Link

2. # Main difference of marginal costing and absorption costing is of calculating profit. In marginal costing, we calculate profit by calculating contribution and then net profit by deducting fixed cost from contribution. By this, we need not to absorb fixed cost per unit. Per unit cost will be same because we give first preference to marginal cost or variable cost. It is easy to decide by how much contribution (and therefore profit) will be affected by changes in sales volume

3. # In absorption costing, we calculate profit with following formula

Absorption Cost of Production = Opening stock + Production Cost - closing stock

Absorption Cost of Sales = Absorption Cost of Production + Add Selling, Admin & Distribution Cost +/- Adjustment of Under or Over absorption of Overheads

Adjusted Profit = Sales - Absorption Cost of Sales

But, in marginal costing, we calculate first contribution and then net profit

Contribution = Sales - Variable Cost

Net Profit = Contribution - Fixed Cost

In marginal costing, however, the actual fixed overhead incurred is wholly charged against contribution.


Q: - 5. What are the main applications of marginal costing?

Ans. Please read it at here.

Q:- 6. What are the limitations of marginal costing?

1. Proper classification of fixed and variable cost is not easy. If you deem any fixed cost as variable cost, it may mislead your decision. Moreover, some cost may be semi-variable. We can not classify it either in fixed cost or variable cost.
 
2.  In marginal costing, we give less preference to fixed cost. But fixed cost can also affect net flow of cash and cash from operation. So, your decision may be affected from this point.
 
3. In the area of construction or making of building or big contract, we can not use marginal costing technique for controlling the cost because fixed cost is more important and it should be take as part of cost of production for normal showing of profit every year.
 
Q :-  7. Which product would you recommend to be manufactured in a factory under marginal costing rules, time being the key factor?
 
Given information  :
 

Per unit of product A Per unit of product B
$  $
Direct Material  24 14
Direct Labor at $ 1 per
hour
 2 3
Variable Overheads at $ 2
per hour
 4 6
Selling Price 100110
Standard Time to Produce 2hrs.  3 hrs.

Ans. We have to calculate contribution for checking whose contribution is better as per marginal costing rules.

Per unit of product A Per unit of product B
$  $
Selling Price 100110
Less Marginal Cost
:
Direct Material  ( - ) 24 ( - )14
Direct Labor at $ 1 per
hour
  ( - ) 2 ( - ) 3
Variable Overheads at $ 2
per hour
 ( - ) 4(  - ) 6
Contribution 7087
Standard Time to Produce 2hrs.  3 hrs.
Contribution Per Hour =
contribution/ standard time
 $ 35 per hour $ 29 per hour

From the above it is clear that contribution per hour of Product A is $ 35 per hour which is more than that of product B by $ 6. There product A is more profitable and is recommend to be manufactured.

COMMENTS


Name

access,2,account,87,accountant,92,Accounting,679,accounting definitions,99,accounting ebook,3,Accounting education,85,accounting procedure,2,accounting process outsourcing,2,Accounting Software,54,advance,3,advertising,6,africa,7,Amalgamation,6,amendments,16,announcements,61,Annuity,2,assets,51,audit,46,auditing,41,Australia,2,B.Com.,22,balance sheet,80,bank,111,Bank reconciliation,12,banking,33,basic accounting,110,BBA,1,benefits,13,best,50,bill,12,black money,3,blog,12,bloggers,7,book keeping,4,bookkeeping,2,Branch Accounting - full tutorial,8,budget,35,Budget variance,13,business,65,businessman,9,CA,29,calculator,4,canada,3,capital,72,capital budgeting,27,career,20,cash,40,cash book,8,cash flow statement,8,Chiense,1,children,13,china,6,class,3,coaching,2,coins,2,college,6,commerce,10,commerce students,7,company,36,computer,9,computer accounting,1,conference,4,Contact vinod kumar,1,Control Your Spending,27,corporate accounting,69,cost,159,cost accounting,194,cost center,8,cost centre,1,CPA,2,credit,18,credit card,10,cs,10,currency,35,data,11,Debit and credit,16,debit cards,1,debt,62,debtor,21,degree,6,depletion,2,depreciation,38,Diwali Messages,12,documents,4,dollar,5,domain,3,Downloads,3,Dubai,1,e-accounting,17,earning,17,education,246,Education Loans,6,email,15,employee,4,EPF,2,ERP,7,euromoney,1,examination,7,excel,17,excise duty,6,expenses,65,facebook,7,factor of loan,1,fans,2,feature,32,fifo,5,FII,4,fiji,1,finacle,1,finance,822,Finance Journal Entries,4,Financial,134,financial accounting,144,fire insurance,3,flickr,2,flow,4,forensic,4,forex,21,formula,8,france,1,fraud,6,free,2,fun,34,function,1,fund,48,GAAP,36,GDP,1,gdr,5,germany,1,gold,7,goodwill,4,goodwill accounting,3,google,34,google apps,3,google apps,1,google base,1,google buzz,1,google calendar,1,Google docs,38,google finance,3,google fusion tables,1,google talk,5,govt.,5,GST,33,guide,85,health,6,Hindi,2,Hindi Language,3,history,3,holding company,3,How to treat FBT in Tally 9,1,HRA,3,ICAI,11,ICAWI,3,ICICI Bank,1,IFRS,10,income,17,income statement,16,Income Tax,7,India,57,indian railway,1,Indonesia,1,inflation,4,inflation accounting,3,infographics,8,information,7,inspiration,175,insurance,14,insurance accounting,2,Intangible,3,interest,26,international,7,Internet,41,Introduction of Tally 9,1,inventory,41,investment,135,investment in Shares,6,invoice,3,IT,1,Japan,1,Job costing,4,journal entries,136,Journal Entries eBook Help,4,Kalculate,1,keyboard,3,kuwait,2,laptop,2,law,4,LBT,1,learning,36,lease,5,lecture,11,ledger,15,leducation,1,Leverage Analysis,7,liabilities,16,lifo,3,linkedin,1,loan,74,logical point,1,loss,5,loss of profit,1,M.Com.,5,m.phil,2,malaysia,3,management accounting,129,manual accounting,4,manufacturing account,1,market,11,marketing,3,mastercard,2,material,13,MBA,14,MCA,1,media,4,migration,2,mobile,9,money,61,ms word,3,ms. excel,14,multi currency in tally 9,1,Multicurrency Accounting,3,mutual fund,30,national security,1,new and sacrifice ratio,1,new york times,1,new zealand,1,news,1,NGO,5,nonprofit-accounting,6,North Georgia Mountains,1,Notification,1,NPV,17,NSE,1,odbc,2,office,10,oman,1,online application,2,online accounting,11,Online Accounting Course,4,otcei,1,pakistan,3,parents,3,Partnership,1,pay pal,3,pdf,4,Personal Finance,6,pie chart,1,pie chart of income,2,pnb,5,podcast,1,ppf,1,presentation,10,price,7,privacy policy,2,prof. vinod kumar,13,profit,24,profit and loss account,12,project management,11,provision,13,purchase,9,puzzles,2,quickbooks,2,Quote,22,quotes,42,quotes of svtuition,1,rating agency,2,ratio analysis,34,RBI,7,readers,13,real estate,13,rectification of errors,11,remote control,2,reports,10,reserves,8,responsibility accounting,4,retirement,2,revenue,3,Revenue reserves,2,review,7,risk,11,rupees,9,salary,5,sale,12,saudi arabia,1,saving,19,sbi,9,scholarship,2,school,1,SEBI,13,security,30,service tax,23,share,20,share trading,15,Shares,16,shri lanka,3,singapore,2,sms,6,social accounting,7,society,5,solution,214,South Africa,1,stock,24,stock exchange,22,structure,6,student,39,students,69,study,21,subsidiary company,2,svtuition,13,swiss bank,2,tally,99,tally 9,8,Tally 7.2,8,Tally 9,42,Tally.ERP 9,59,tanzania,2,tax,94,Tax Accounting,30,TDS,15,teacher,62,teaching,112,technology,33,test,40,testimonial,15,testimonials,15,thailand,1,tips,60,trading,5,trading on equity,2,transaction,7,trend,12,trial balance,13,truthfulness,1,tuition,3,twitter,10,UAE,5,UGC - NET Commerce,13,UK,11,United Arab Emirates,1,university,9,usa,25,valuation,8,VAT,22,Video,35,Voucher and vouching,4,Wealth,8,wikipedia,25,working capital,29,youtube,14,
ltr
item
Accounting Education: Marginal Costing - FAQ
Marginal Costing - FAQ
Accounting Education
http://www.svtuition.org/2011/04/marginal-costing-faq.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2011/04/marginal-costing-faq.html
true
2410664366776677676
UTF-8
Loaded All Posts Not found any posts VIEW ALL Reply Cancel reply Delete By Home PAGES Contents View All RELATED CONTENTS FOR YOUR LEARNING Topic ARCHIVE SEARCH ALL POSTS Not found any post match with your request Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS PREMIUM CONTENT IS LOCKED STEP 1: Share to a social network STEP 2: Click the link on your social network Copy All Code Select All Code All codes were copied to your clipboard Can not copy the codes / texts, please press [CTRL]+[C] (or CMD+C with Mac) to copy