Q2: The following are the data extracted from the records of one of the industrial companies for the months of June and July: 1) The variable cost per unit as it was in the months of June and July: Direct materials 50 dinars, direct wages 25 dinars and EGP 15 dinars, Marketing costs 10 dinars 2) Fixed monthly costs:- Industrial 300,000 dinars and marketing 150,000 dinars, administrative 50,000 dinars. 3) The movement of finished production and other data: the absence of production in operation, first and last period, the number of units produced during the month of June, 7500 units, the stock of the finished production, at the end of June, 2000 units, the number of units sold during the month of July, 11,000 units, at a price of 150 dinars per unit. Total production stock at the end of July, 1000 units. Required: Preparing the list of costs and revenues for the month of July according to the total and marginal method
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.
Step by step
Solved in 3 steps