Unit 1: Marginal Costing Ans1: According to- The American Accounting Association, Management Accounting includes the methods

and concepts necessary for the effective planning, for choosing alternative business actions and for control through the evaluation and interpretation of performance. Management Accounting is the process of identification, measurement, presentation, analysis, interpretation and communication of accounting information that assist the management in planning , decision making, direction and control within the framework of fulfillment the organizational objectives. Ans2: Strategic Management Accounting has been defined as "A form of management accounting in which emphasis is placed on information which relates to factors external to the firm, as well as non-financial information and internally generated information. The emphasis was placed upon relative levels and trends in real costs and prices, volume, market share, cash flow and stewardship of the resources available to the business. Ans3: Absorption costing is a conventional technique of the asserting cost and profit. It is practice under which all costs, weather fixed or variable, are charged to operations or production process. So it is also known as full costing or total costing technique.

Ans4: Marginal costing is a specific technique of the cost analysis in which cost information are presented in such a manner so that it may help the management in cost control and various managerial decisions. In this technique total cost is divided into two components i.e. fixed and variable. Marginal cost is the amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit. Ans5: A cost of labor, material or overhead that changes according to the change in the volume of production units. Combined with fixed costs, variable costs make up the total cost of production. While the total variable cost changes with increased production. In other words variable costs are those costs of marginal cost which fluctuates at every level of production process, like wages, raw material, and power etc. Ans6:
In practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in shortterm cost accounting. Firms with high fixed costs are significantly different from those with high variable costs. In other words we can say that fixed costs are those costs which cannot be changed according to the production level. So expense are fixed at all, like salary, warehouse rent, depreciation, interest, insurance etc.

Ques7. Semi variable cost is an expense which contains both a fixed cost component and a variable cost component. The fixed cost element shall be a part of the cost that needs to be paid irrespective of the level of activity achieved by the entity. On the other hand the variable component of the cost is payable proportionate to the level of activity. It shows similarities to telephone bills. One must pay line rental and on top of that a price that depends on how heavy one is using the service. So it changes with output. Ques8. Contribution is the difference between sales and variable cost of sales. In other words, the excess of the sales over its variable cost is called contribution. It is also known as Contribution Margin and Gross Margin. It can also be explained that excess of sales over the variable cost which is available to cover fixed cost and to earn the profit. If the amount of contribution is less than fixed cost than it will be a position of loss to the firm. Ques9. It is the ratio of contribution to sale and is expressed generally in terms of percentage. It is also known as Contribution ratio, Contribution/Sales Ratio or Marginal Income Percentage. P/V Ratio is one of the most important ratios for studying the profitability of the firm. The concept of P/V ratio is also useful to calculate the break-even point, the profit at a given volume of sales the sales volume required to earn a desired profit and volume of sales required to maintain the existing profit. P/V Ratio = (Contribution / Sales * 100)

Ans10: Break-even point is that point of the production or sales at which firm neither earns any profit nor incurs any loss. It is also known as No Profit Point or Zero Loss Point. According to Keller and Ferrara, The Break-even Point of the company or a unit of a company is that level of sales income which will equal the sum of its fixed costs and its variable costs i.e. no profit no loss level. Ans11: Margin of safety is an important indicator of the strength of the business. If the margin of safety is large the position of the business will be sound and it can easily resist the situation of reduction in sales. So all fixed have been ignored in the formula of M.O.S. i.e. M.O.S i.e. M.O.S. is that sales which gives profit to the firm after meeting the fixed costs. Hence, it is the difference between actual sales and B.E.P. sales. Ans12: It is the total percentage of actual sales and M.O.S. So it reflects the total value of P/V ratio as well as B.E.P. and sales of the firm. M.O.S. % = (Total M.O.S. / Total Actual Sales * 100) Ans13: A key factor is that factor which puts a limit on the production and profit of a business. For example, if the availability of raw material is limited , than raw material will be the key factor and if labor hours is limited than labor hours will be key factor. Similarly capacity of machine, amount of sales, units of sales can also be key factors.

Unit 2: Budgeting and Budgetary Control