Untitled Quiz
33 Questions
0 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to Lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is marginal cost as understood in economics?

The incremental cost of production for producing one additional unit of product.

Fixed costs remain constant irrespective of the volume of production.

True (A)

How is marginal cost measured?

By the total variable cost attributable to one additional unit.

Marginal costing is a costing system where products or services and inventories are valued at variable costs only.

<p>True (A)</p> Signup and view all the answers

What does not take consideration in marginal costing?

<p>Fixed costs.</p> Signup and view all the answers

What is another name for marginal costing because only direct costs are involved?

<p>Direct costing (B)</p> Signup and view all the answers

Direct costing and Marginal Costing is synonymous.

<p>True (A)</p> Signup and view all the answers

The relationship of cost must be understood with respect to activity level.

<p>True (A)</p> Signup and view all the answers

Differential cost is the difference between the costs of two different production levels.

<p>True (A)</p> Signup and view all the answers

Incremental cost relates to costs that are incurred due to changes in volume or in the process of production activities.

<p>True (A)</p> Signup and view all the answers

Marginal cost is synonymous with incremental cost.

<p>False (B)</p> Signup and view all the answers

Under marginal costing, the value of finished goods and work-in-progress includes variable selling and distribution costs.

<p>False (B)</p> Signup and view all the answers

Under marginal coating, fixed costs are treated as period costs and they are charged to the profit and loss account for the period for which they are incurred.

<p>True (A)</p> Signup and view all the answers

Prices are determined with reference to marginal costs and contribution margin.

<p>True (A)</p> Signup and view all the answers

The profitability of departments and products is determined with reference to fixed costs.

<p>False (B)</p> Signup and view all the answers

Marginal costing is a distinct method of costing.

<p>False (B)</p> Signup and view all the answers

Cost Ascertainment is made on the basis of the nature of cost.

<p>True (A)</p> Signup and view all the answers

The traditional or total cost method classifies cost on a functional basis.

<p>True (A)</p> Signup and view all the answers

Under the total cost method, the total cost per unit will remain constant when the level of output of mixture is the same from period to period.

<p>True (A)</p> Signup and view all the answers

The application of marginal costing is recognized in the field of decision making.

<p>True (A)</p> Signup and view all the answers

Fixed production costs are not included in the value of products in marginal costs.

<p>True (A)</p> Signup and view all the answers

Fixed costs are charged against the contribution margin.

<p>True (A)</p> Signup and view all the answers

The contribution margin shows the margin of profit.

<p>False (B)</p> Signup and view all the answers

The contribution margin is the difference between sales revenue and total variable costs.

<p>True (A)</p> Signup and view all the answers

The contribution margin is calculated by subtracting the variable cost from the selling price.

<p>True (A)</p> Signup and view all the answers

Finished goods are valued at variable cost only.

<p>True (A)</p> Signup and view all the answers

Work-in-progress (WIP) inventories are valued at product cost.

<p>True (A)</p> Signup and view all the answers

Absorption Costing is the practice of charging all costs, both variable and fixed, to operations, processes, or product.

<p>True (A)</p> Signup and view all the answers

Fixed expenses in absorption costing are distributed based on the absorption costing basis.

<p>True (A)</p> Signup and view all the answers

Under absorption costing, fixed expenses are assigned to a specific process or product, and they are based on predetermined level of activity.

<p>True (A)</p> Signup and view all the answers

Under absorption costing, pre-determined levels of output are considered to determine recovery of fixed expenses.

<p>True (A)</p> Signup and view all the answers

Under absorption costing, fixed expenses are recovered on a pre-determined level based on the estimated output.

<p>True (A)</p> Signup and view all the answers

Under marginal costing the contribution margin is used for the recovery of fixed expenses.

<p>True (A)</p> Signup and view all the answers

Flashcards

Marginal Cost

The additional cost of producing one more unit of a product.

Marginal Costing

A costing method that values products only at variable costs.

Variable Costs

Costs that change with the level of production.

Fixed Costs

Costs that remain constant regardless of production level.

Signup and view all the flashcards

Direct Costing

Same as marginal costing and values only variable costs.

Signup and view all the flashcards

Cost-Volume-Profit (CVP) Analysis

A method to analyze the effects of volume changes on cost and profit.

Signup and view all the flashcards

Break-even Point

The level of sales where total revenue equals total costs, resulting in zero profit or loss.

Signup and view all the flashcards

Margin of Safety

Amount by which sales can decline before losses occur.

Signup and view all the flashcards

Angle of Incidence

The angle formed by connecting points on the cost and revenue lines of a graph.

Signup and view all the flashcards

Contribution Ratio

Ratio that indicates how much of each sale is directed toward covering fixed costs.

Signup and view all the flashcards

Prime Cost

Direct materials plus direct labor.

Signup and view all the flashcards

Study Notes

Marginal Costing

  • A costing system where only variable costs are considered for product costs and inventory valuation.
  • Fixed costs are treated as period costs.

Cost-Volume-Profit (CVP) Analysis

  • A managerial tool to show the relationship between cost, volume, and profit.
  • It explores the relationship between costs, revenue, activity levels, and the resulting profit.
  • It aims to measure variations in cost and volume.

Break-Even Analysis

  • A method used to study Cost-Volume-Profit analysis.
  • In a narrow sense, it is concerned with computing the break-even point, which is when total costs equal total sales revenue.
  • In a broader sense, it determines possible profit/loss at different production or sales levels.
  • Can be conducted using algebraic computations or graphic presentations.

Margin of Safety

  • The difference between the expected level of sales and the break-even sales. The higher the margin, the higher the chances of making profits.
  • Margin of Safety = Projected sales - Break-even sales
  • Or, calculated as Profit / P/V ratio

Absorption Costing

  • A costing method wherein all costs, both variable and fixed, are charged to products or operations, processes, or products.
  • Fixed overhead costs are distributed across products based on a predetermined level of output.

Key Differences Between Marginal Costing and Absorption Costing

  • Treatment of Fixed Costs: Marginal costing treats fixed costs as period costs, while absorption costing treats them as product costs.
  • Inventory Valuation: Marginal costing values inventory only at variable costs, whereas absorption costing includes both variable and fixed costs.
  • Profit Determination: Profit in marginal costing is determined by deducting total variable costs and fixed costs from revenue, while in absorption costing, profit is calculated by deducting the total cost of goods sold from revenue.
  • Marginal Costing's Usefulness: Marginal costing is widely used for decision-making in the short term, whereas absorption costing is more appropriate for long-term financial reporting and preparing financial statements for external stakeholders.

Cost Ascertainment under Marginal Costing

  • Cost ascertainment in marginal costing is based on how costs behave; the technique has been developed from a particular conception of the nature and behavior of costs.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Related Documents

Marginal Costing PDF - ICAI

More Like This

Untitled Quiz
6 questions

Untitled Quiz

AdoredHealing avatar
AdoredHealing
Untitled Quiz
37 questions

Untitled Quiz

WellReceivedSquirrel7948 avatar
WellReceivedSquirrel7948
Untitled Quiz
55 questions

Untitled Quiz

StatuesquePrimrose avatar
StatuesquePrimrose
Untitled Quiz
48 questions

Untitled Quiz

StraightforwardStatueOfLiberty avatar
StraightforwardStatueOfLiberty
Use Quizgecko on...
Browser
Browser