Marginal Costing Part 2 Ques
Chapter notes, video classes, MCQ practice tests and quick-revision one-liners for Accounting and Financial Management for Bankers — JAIIB.
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What is the formula for contribution in marginal costing?
Contribution = Sales – Variable Cost (or Marginal Cost). It represents the amount available to cover fixed costs and generate profit.
What is the formula for calculating total contribution in marginal costing?
Total Contribution = Total Sales minus Total Variable Costs
How is the Profit/Volume (P/V) ratio calculated?
P/V Ratio = Contribution / Sales × 100. It indicates the proportion of each sales rupee that contributes towards fixed costs and profit.
What does the term 'marginal cost' refer to in cost accounting?
Cost of producing one additional unit, i.e., variable cost per unit
What does a higher P/V ratio indicate for a business?
A higher P/V ratio indicates greater profitability per unit of sales, meaning fixed costs are recovered faster and profit generation is more efficient.
How is the number of units required to earn a target profit calculated under marginal costing?
(Fixed Costs + Target Profit) divided by Contribution per unit
How is the Break-Even Point (BEP) in units calculated?
BEP (Units) = Fixed Costs / Contribution per Unit. At this point, the firm neither earns a profit nor incurs a loss.
What is meant by 'absorption costing' as opposed to marginal costing?
Method where fixed overheads are absorbed into product cost per unit
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