Question 1. What Is Marginal Costing? What Are Its Features?
Marginal Costing is ascertainment of the marginal fee which varies directly with the extent of manufacturing by way of differentiating among fixed charges and variable expenses and finally ascertaining its impact on profit.
The basic assumptions made with the aid of marginal costing are following:
Total variable price is directly proportion to the extent of interest. However, variable value per unit remains constant at all the degrees of sports.
Per unit promoting price remains steady at all degrees of sports.
All the items produced by using the corporation are bought off.
Features of Marginal costing:
It is a technique of recoding expenses and reporting profits.
It includes ascertaining marginal costs which is the distinction of constant cost and variable price.
The operating charges are differentiated into constant fees and variable fees. Semi variable charges also are divided in the character components of constant fee and variable cost.
Fixed fees which continue to be constant regardless of the volume of production do not locate location within the product price dedication and inventory valuation.
Fixed costs are handled as duration price and are written off to the profit and loss account within the length incurred.
Only variable charges are taken into consideration even as computing the product value.
Prices of merchandise are based totally on variable price simplest.
Marginal contribution makes a decision the profitability of the products.
Question 2. How Is The Concept Of Marginal Costing Practically Applied?
The idea of marginal costing is almost implemented inside the following conditions:
Evaluation of Performance : The evaluation of the performance of diverse departments or merchandise may be evaluated with the assist of marginal costing which is based totally on contribution generating capacity.
Profit Planning : This method through the calculation of P/V Ratio helps the control to devise the sports in the sort of way that the profit can be maximised.
Fixation of Selling Price : The approach of marginal costing assists the management to repair the price in the sort of way in order that costs constant can cover as a minimum the variable price.
Make or Buy choice : Marginal cost evaluation allows the control in making or shopping for selection.
Optimizing Product Mix : To maximise profits and boom sales quantity it is important to determine an optimized mix or percentage in which numerous merchandise of a agency may be bought.
Cost Control: Marginal Costing is a technique of price type and fee presentation which permit the control to concentrate on the controllable charges.
Flexible Budget education: As the marginal costing especially classifies prices as fixed and variable prices which enables the practise of bendy budgets.
Sales Management Interview Questions
Question three. What Are The Limitations Of Marginal Costing?
The barriers of Marginal Costing:
The type of overall charges into constant and variable value is hard.
In this approach fixed prices are completely eliminated for the valuation of stock of completed and semi-finished goods. Such removal impacts the profitability adversely.
In marginal costing ancient facts is used at the same time as control choices are associated with future events.
It does now not offer any fashionable for the evaluation of performance.
Selling fee constant on the basis of marginal fee might be useful only for quick time frame.
Assessment of profitability at the marginal price base can be used most effective in the quick time frame.
Question 4. What Is Cost Volume-earnings Relationship?
Cost Volume-Profit (CVP) courting is an analysis which studies the relationships among the subsequent factors and its impact on the amount of income.
Selling price consistent with unit and overall sales quantity • Total cost which may be in any form i.E. Fixed cost or Variable fee.
Volume of income
In simple words, CVP is a management accounting device that expresses relationship amongst overall sales, total price and income. Cost Volume-Profit relationship is one of the important techniques of fee and control accounting. It is a powerful tool which furnishes the complete photo of the profit shape and helps in making plans of profits. It can also solution what if kind of questions with the aid of telling the quantity required to supply. This concept is relevant in all decision making regions, specially in the quick run.
Sales Management Tutorial
Question five. Explain P/v Ratio And Contribution?
P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which suggests the contribution earned with admire to at least one rupee of sales. It also measures the price of change of earnings because of change in quantity of sales. Its fundamental assets is if in line with unit income fee and variable fee are steady then P/V Ratio may be regular at all of the degrees of sports. A trade is fixed value does now not have an effect on P/V Ratio. It is calculated as below:
(Contribution * a hundred) / Sales
(Change in earnings * one hundred) / (Change in sales)
A high P/V Ratio suggests that a moderate growth in income with out boom in fixed costs will bring about higher profits. A low P/V ratio which shows low profitability may be advanced by using increasing promoting price, reducing marginal costs or promoting merchandise having high P/V ratio.
It is the distinction among income revenue and variable fee (additionally called variable price). Variable cost is the vital cost in deciding profitability as constant charges are unnoticed by marginal costing.
It may be expressed in two approaches:
Sales Revenue – Variable Cost
Fixed Cost + Profit
The situation producing higher contribution is treated as a worthwhile state of affairs.
Auditing Interview Questions
Question 6. Explain Break Even Point. How Does Bep Help In Making Business Decision?
Break Even Point (BEP) is a extent of sales wherein there's neither loss nor income. That manner contribution is sufficient to cover the fixed costs.
Thus, we are able to say that Contribution = Fixed Cost
Any contribution generated after BEP will immediately end result into income because the constant costs are fully covered now. BEP may be computed in two methods:
In phrases of Quantity-
Fixed Costs / Contribution consistent with unit
In terms of Amount-
(Fixed Costs) / (P/V Ratio):
BEP (Break Even Point) is the scenario where there's neither loss nor income. At this degree, the contribution is enough to cover the fixed fees i.E contribution is same to fixed value. Contribution generated after the damage even factor will result in profits for the organisation. Profit maximization is the motive of every corporation. Thus, every enterprise use BEP as a base to take various choices in regard to its sales extent and attempts to boom it so that total fixed prices may be protected as early as feasible and greater earnings can be earned.
Question 7. Explain Margin Of Safety?
Margin of Safety is the amount of sales which generates earnings. In different words, sales beyond Break Even Point are called Margin of Safety. It is calculated because the difference between general sales and the smash even sales. It can be expressed in monetary terms or range of gadgets. It may be expressed as underneath:
Margin of Safety = Sales – Break Even Sales
= Sales - (Fixed Cost) / (P/V Ratio)
= ((Sales * (P/V) Ratio) - Fixed Cost) / (P/V) Ratio
= (Contribution - Fixed Cost) / (P/V) Ratio
= Profit / (P/V) Ratio
The length of margin of protection is an exceedingly vital guide to the economic power of a business. If margin of safety is large, which shows that BEP is a whole lot beneath the real income, that means business is in a sound circumstance and discount in income will now not affect the earnings of the commercial enterprise. On the other hand, if margin of safety is low, any lack of sales may be a critical depend. Thus, efforts need to be made to reduce constant prices, variable prices or growing the selling charge or sales quantity to improve contribution and average P/V Ratio.
Cost Accounting Interview Questions
Question eight. What Is Flexible Budget Preparation?
Flexible Budget training: As the marginal costing specially classifies fees as constant and variable fees which allows the instruction of flexible budgets.
Question nine. What Is Cost Control?
Cost Control : Marginal Costing is a technique of cost class and fee presentation which permit the management to pay attention on the controllable charges.
Finance Interview Questions
Question 10. What Is Optimizing Product Mix?
Optimizing Product Mix : To maximise profits and boom sales volume it is essential to decide an optimized mix or share in which diverse products of a organisation can be bought.
Question 11. Explain Make Or Buy Decision?
Make or Buy choice : Marginal value evaluation allows the management in making or shopping for selection.
Budget and Planning Interview Questions
Question 12. What Is Fixation Of Selling Price?
Fixation of Selling Price : The method of marginal costing assists the management to repair the charge in such a manner in order that fees fixed can cowl at the least the variable cost.
Sales Management Interview Questions
Question thirteen. What Is Pro&t Planning?
Profit Planning : This method thru the calculation of P/V Ratio helps the management to devise the sports in the sort of manner that the profit can be maximised.
Question 14. What Is Contribution?
Contribution: It is the distinction among income revenue and variable value (additionally known as variable fee). Variable cost is the vital value in identifying profitability as fixed fees are left out with the aid of marginal costing.
It may be expressed in ways:
• Sales Revenue – Variable Cost
• Fixed Cost + Profit
Question 15. What Is P/v Ratio?
P/V Ratio: P/V Ratio (Profit Volume Ratio) is the ratio of contribution to income which suggests the contribution earned with admire to at least one rupee of sales. It also measures the charge of alternate of earnings because of change in volume of income. Its essential property is if in step with unit sales rate and variable value are consistent then P/V Ratio could be consistent at all the stages of sports. A change is constant cost does not affect P/V Ratio.
It is calculated as under:
(Contribution * a hundred) / Sales
(Change in income * 100) / (Change in sales)
A excessive P/V Ratio shows that a mild growth in sales with out growth in fixed expenses will bring about higher earnings. A low P/V ratio which shows low profitability may be stepped forward by way of increasing promoting rate, lowering marginal prices or promoting products having excessive P/V ratio.
Influencer Marketing Interview Questions
Question 16. Explain Evaluation Of Performance?
Evaluation of Performance : The evaluation of the performance of various departments or merchandise can be evaluated with the help of marginal costing which is based totally on contribution producing potential.
Question 17. What Is Need For Marginal Costing?
Variable cost in step with unit stays regular; any boom or decrease in production changes the overall price of output.
Total constant value stays unchanged up to a certain stage of production and does now not range with increase or lower in manufacturing. It means the fixed cost remains regular in terms of overall price.
Fixed charges exclude from the overall cost in marginal costing technique and provide us the same value in keeping with unit as much as a sure stage of production.
Internal Audit Interview Questions
Question 18. Ascertainment Of Profit Under Marginal Cost?
‘Contribution’ is a fund this is identical to the selling price of a product much less marginal price.
Contribution can be defined as follows:
Contribution = Selling Price – Marginal Cost
Contribution = Fixed Expenses + Profit
Contribution – Fixed Expenses = Profit
Auditing Interview Questions
Question 19. What Is Role Of Fixed Costs?
Fixed fees are sunk expenses. What is sunk can't be retrieved inside the same condition. Fixed expenses can not be reversed, with out loss. Machinery purchased, already, cannot be sold, with out loss, in phrases of money. Fixed fees which can be incurred aren't applicable for our decision-making. Costs with a purpose to be incurred, in any occasion, need to no longer be taken into consideration inside the decision-making. In other phrases, the present constant expenses, which cannot be stored, do now not have an effect on the choice as those costs are already incurred and can not be reversed, whether the companies makes or buys.
Question 20. What Are ‘sunk Costs’? Why They Are So Called?
‘Sunk costs’ are fixed prices. What is sunk can't be retrieved. In a comparable way, fixed fees, as soon as incurred, can not be reversed.
Budgetary Control Interview Questions
Question 21. Why Fixed Costs Are Ignored In ‘make Or Buy’ Decisions?
Fixed prices are already incurred and so they do no longer have an effect on the future ‘Make or Buy’ choices. Hence, they're overlooked for comparison. Only variable fees, in both options, are as compared and that option is selected, in which the variable fees are decrease.