From the following data, compute the duration of the operating cycle for each of the two years and comment on the increase/ decrease: (Rupees in Thousands) Year I 20 14 21 96 140 160 32 16 Year II 27 18 24 135 180 200 50 18 Stock of Raw materials Work in process Finishes Goodsł Purchases Cost of Goods sold Sales Debtors Creditors Assume 360 days per year for computational purposes.
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
From the following data, compute the duration of the operating cycle for each of the two years and comment on the increase/ decrease: (Rupees in Thousands)
Year I
20
14
21
96
140
160
32
16
Year II
27
18
24
135
180
200
50
18
Stock of Raw materials
Work in process
Finishes Goodsł
Purchases
Cost of Goods sold
Sales
Debtors
Creditors
Assume 360 days per year for computational purposes.
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