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CA FINAL ADVANCED MANAGEMENT ACCOUNTING. Few concepts at a quick glance………. MARGINAL COSTING. MARGINAL COST STATEMENT. SALES XXX (-) VARIABLE COST XXX CONTRIBUTION XXX
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CA FINALADVANCED MANAGEMENT ACCOUNTING Few concepts at a quick glance………
MARGINAL COST STATEMENT SALES XXX (-) VARIABLE COST XXX CONTRIBUTION XXX (-) FIXED COST XXX PROFIT XXX LOSS REPRESENTS UNRECOVERED FIXED COST
RATIOS P/V RATIO V/C RATIO VARIABLE COST X 100 SALES CONTRIBUTION X 100 SALES P/V RATIO = 100% - V/C RATIO
BREAK EVEN POINT(BEP) LEVEL OF SALES WHERE THERE IS NO PROFIT NO LOSS SITUATION i.e. CONTRIBUTION = FIXED COST BREAK EVEN POINT(in Rs.) = FIXED COST P/V RATIO BREAK EVEN POINT(in Units) = FIXED COST CONTR. P . u.
MARGIN OF SAFETY (MOS) IT IS THE DIFFERENCE B/W TOTAL SALES AND BREAK EVEN SALES MOS (in Rs.) = TOTAL SALES – BREAK EVEN SALES OR PROFIT / PV RATIO MOS (in Qty.) = PROFIT / CONTRIBUTION PER UNIT
INDIFFERENCE POINT IT IS THAT LEVEL OF SALES WHERE THE COSTS AND PROFITS OF TWO OPTIONS ARE EQUAL. PROFIT OF OPTION 1 PROFIT OF OPTION 2 ---------------------------- AMOUNT (in Rs.) INDIFFERENCE POINT ------------------------ QUANTITY
FORMULA: INDIFFERENCE POINT (in Rs.) = DIFFERENCE IN FIXED COST DIFFERENCE IN V/C RATIO OR = DIFFERENCE IN FIXED COST DIFFERENCE IN P/V RATIO
FORMULA: B) INDIFFERENCE POINT (in Units) = DIFFERENCE IN FIXED COST DIFFERENCE IN VARIABLE COST p.u OR = DIFFERENCE IN FIXED COST DIFFERENCE IN CONTR. p.u.
SHUT DOWN POINT IT INDICATES THE LEVEL OF OPERATIONS BELOW WHICH IT IS NOT JUSTIFIED TO PURSUE PRODUCTION. FOR THE ABOVE PURPOSE DIVIDE THE FIXED COST AVOIDABLE OR DISCRETIONARY FIXED COST UNAVOIDABLE OR COMMITTED FIXED COST
FORMULAS: SHUT DOWN POINT (in Rs.) = AVOIDABLE FIXED COST P/V RATIO SHUT DOWN POINT (in Qty.) = AVOIDABLE FIXED COST CONTRIBUTION p.u. AVOIDABLE F.C. = TOTAL F.C. – UNAVOIDABLE F.C.
KEY FACTOR OR THE LIMITING FACTOR • IT REPRESENTS A RESOURCE WHOSE AVAILABILITY IS LESS THAN ITS REQUIREMENT. • IT IS ALSO CALLED CRITICAL FACTOROR BUDGET FACTOR. • EXAMPLES OF KEY FACTOR: • SHORTAGE OF RAW MATERIAL • LABOUR SHORTAGE • RESTRICTIONS IN PLANT CAPACITY • DEMAND OR SALE EXPECTANCY • CASH AVAILABILITY
KEY FACTOR- DECISION MAKING STEPS • IDENTIFY THE KEY FACTOR. • COMPUTE TOTAL CONTRIBUTION OR CONTRIBUTION PER UNIT OF PRODUCT. • COMPUTE CONTRIBUTION PER UNIT OF THE KEY FACTOR i.e. CONTRIBUTION per DIRECT LABOUR HOUR. • RANK THE PRODUCTS BASED ON CONTRIBUTION PER UNIT OF THE KEY FACTOR • ALLOCATE THE KEY RESOURCES BASED ON RANKS GIVEN ABOVE.
MATERIAL COST ALREADY AVAILABLE TO BE PURCHASED REGULARLY USED RARELY USED PURCHASE PRICE, BEING OUT OF POCKET COST IS RELEVANT NET REALISABLE VALUE IS RELEVANT AS OPPURTUNITY COST CURRENT REPLACEMENT COST IS RELEVANT AS INCREMENTAL COST
FIXED COST FIXED COSTS ARE IRRELEVANT FOR DECISION MAKING EXCEPTIONS: SPECIFICALLY INCURRED FOR A CONTRACT INCREMENTAL INCREASE DUE TO CHANGE IN LEVEL OF ACTIVITY AVOIDABLE OR DISCRETIONARY FIXED COST ONE COST IS INCURRED IN LIEU OF ANOTHER (DIFFERENCE IN COSTS WILL WE RELEVANT)
OPPORTUNITY COST VALUE OF SACRIFICE MADE/BENEFIT OF OPPORTUNITY FOREGONE BY SELECTING ONE ALTERNATIVE IN PREFERENCE TO OTHERS. • FEATURES OF OPPORTUNITY COST: • TAKEN INTO CONSIDERATION ONLY WHEN ALTERNATIVES ARE COMPARED. • ARISES ONLY IN RESOURCE SHORTAGE SITUATIONS i.e. KEY FACTOR SITUATION. • USEFUL ONLY FOR DECISION MAKING & NOT FOR ACCOUNTING, REPORTING & COST CONTROL. • ARISES ONLY IN SHORT RUN.
PRODUCT / SERVICES TRANFERED RECIPIENT DIVISION TRANSFER DIVISION CONSIDERATION = TRANSFER PRICE COST REVENUE OBJECTIVE: TO BUY INTERNEDIATE PRODUCT & MAXIMISE REVENUE OBJECTIVE: TO SELL INTERNEDIATE PRODUCT & MAXIMISE REVENUE
FIXATION OF MINIMUM & MAXIMUM TRANSFER PRICE MINIMUM TRANSFER PRICE (ALWAYS FROM TRANSFER DIVISION VIEW): IT IS THE TOTAL OF FOLLOWING ITEMS: VARIABLE COST UPTO THE POINT OF INTERNAL TRANSFER. FIXED COST, IF SPECIFIC. OPPORTUNITY COST, IF APPLICABLE. NOTES: SELLING OVERHEADS ARE INCURRED FOR EXTERNAL SALES ONLY. OPPORTUNITY COST ARISES ONLY IF- - TRANSFERRING DIVISION PRODUCES MARKETABLE PRODUCTS - TRANSFERRING DIVION OPERATES AT FULL CAPACITY
FIXATION OF MINIMUM & MAXIMUM TRANSFER PRICE MAXIMUM TRASFER PRICE (ALWAYS FROM RECIPIENT DIVISION VIEW): IT IS THE LEAST OF FOLLOWING ITEMS: MARKET PRICE OF INTERMEDIATE PRODUCT (AS QUOTED BY OUTSIDE SUPPLIER) INTERNAL TRANSFER PRICE (AS QUOTED BY TRANSFERRING DIVISION) NOTES: IF THE PRICE QUOTED BY THE TRANSFERRING DIVISION IS MORE THAN THE PRICE QUOTED BY THE OUTSIDE SUPPLIER THEN IT IS ALWAYS BETTER TO PURCHASE FROM OUTSIDE.
ACTIVITY BASED COSTING MEANING: IT IS THE IDENTIFICATION OF COST WITH EACH COST DRIVING ACTIVITY AND MAKING IT AS THE BASIS FOR APPORTIONMENT / ASSIGNMENT OF COSTS OVER DIFFERENT COST OBJECTS /JOBS/ PRODUCTS/ CUSTOMERS/SERVICES. COST OBJECTS: ITEM FOR WHICH COST MEASUREMENT IS REQUIRED. COST DRIVER: IT IS THE FACTOR THAT CAUSES A CHANGE IN THE COST OF AN ACTIVITY. RESOURCE COST DRIVERS:MEASURE OF QUANTITY OF RESOURCES CONSUMED BY AN ACTIVITY & USED TO ASSIGN THE COST OF A RESOURCE TO AN ACTIVITY/COST POOL ACTIVITY COST DRIVER: MEASURE OF FREQUENCY AND INTENSITY OF DEMAND, PLACED ON ACTIVITES BY COST OBJECTS & USED TO ASSIGN ACTIVITY COSTS TO COST OBJECTS.
THANK YOU & ALL THE BEST