Important: INTRODUCTION TO MANAGEMENT ACCOUNTING (Theory) (Minimum 25marks)

CHAPTER 1
INTRODUCTION TO MANAGEMENT ACCOUNTING (Theory) (minimum 25marks)
● Management accounting
● Nature or Characteristics of Management accounting
● Scope of Management accounting (4 or 8 marks)
● Objectives of Management accounting (4 marks) (some points are similar to characteristics)
● functions
● Difference between financial accounting and management accounting (Important)
● Difference between Cost accounting and management accounting
● Advantages and disadvantages
● Installation of management accounting system
CHAPTER 6
MARGINAL COSTING AND CVP ANALYSIS
Theory
1. Absorption costing (full costing)
2. Marginal cost
3. Marginal costing
4. Contribution
5. Break-even point (BEP)
6. Margin of safety
7. PV ratio and its uses
8. Angle of incidence
9. Applications of Marginal costing
Problem 1 (1 year)
Problem 2 (2 years)
2015 2016 ( ____ means no loss or profit)
Sales 76,000 1,30,000

Profit _____ 6000
Loss 4800 _____
● Calculate BEP
● Profit when sales are of Rs 1,20,000
● Loss when sales go down to the level of Rs 60,000
● Sales required to earn a profit of Rs 1,00,000
● Margin of safety 2016
Answer
● P/V ratio = Changes in profit x 100

Changes in sales
= (- 4800) +6000 negative 4800 cuz its a loss
1,30,000 - 76,000
= 10800 x 100 = 20%
54000
● BEP = Fixed Cost (don’t know the value of Fixed Cost) …………...equation 1
P/V ratio
● Fixed Cost (FC) = Contribution - Profit (don’t know the value of Contribution) ……...equation 2
● Contribution = Sales x P/V ratio

= 1,30,000 x 20 (You can consider sales of any year)
100
= 26000 substitute in equation 2
Therefore,
FC = 26000 - 6000
= 20,000 substitute in equation 1
BEP = 20,000 = 20,000 = 1,00,000

(20/100) 0.20
● Profit when sales are of Rs 1,20,000
Profit = Contribution - Fixed cost
Note : As the Sales changes contribution also changes

So we need to find the value of contribution again
Contribution = Sales x P/V ratio

= 1,20,000 x 20
100
=24,000
Therefore, Profit = 24,000 - 20,000
= 4000
● Loss when sales go down to the level of Rs 60,000
Loss occurs when there is an increase in Cost. As the cost increase contribution decreases.
Loss = Fixed Cost - Contribution
Here sales changed so we need to find the contribution

= 60,000 x 20 = 12,000
100
Therefore, Loss= 20,000 -12,000
= 8000
● Sales required to earn a profit of Rs 1,00,000
= Fixed cost +desire profit = 20,000 + 100,000 = 1,50,000

P/V Ratio (20 /100)
● Margin of safety 2016
Margin of safety, MOS = Actual sales - BEP
= 1,30,000 - 1,00,000
= 30,000
Problem 3 Note: here, instead of Profit, Total cost is given
Period sales Total cost

1 1,20,000 108000
2 1,40,000 124000
Find
● BEP
● Variable cost
● Sales required to earn a profit of 20,000
Since total cost is given instead of profit, we need to find profits of both period
Profit = sales - total cost
For period 1 …….. 1,20,000 - 108000 = 12,000

For period 2 1,40,000 - 124000 = 16,000
● P/V ratio = Changes in profit x 100

Changes in sales
= 16,000 - 12,000 x100 = 4000 x 100

1,40,000 - 1,20,000 20000
= 20%
BEP = Fixed Cost (don’t know the value of Fixed Cost) …………...equation 1
P/V ratio
Fixed Cost (FC) = Contribution - Profit (don’t know the value of Contribution) ……...equation 2

= 1,20,000 x 20 (You can consider sales of any year)
100
= 24000 substitute in equation 2
Therefore,
FC = 24000 - 12000 (consider profit of previously selected year )
= 12,000 substitute in equation 1
BEP = 12,000 = 12,000 = 60,000

(20/100) 0.20
● Variable cost
For Period 1
Variable cost = Sales - contribution (Since contribution of period 1 is already calculated
So substitute that value directly )
= 1,20,000 - 24,000
= 96,000
For Period 2
Variable cost = Sales - contribution
Contribution = Sales x P/V ratio (for period 2)
= 1,40,000 x 20 = 28,000
100
Variable cost = Sales - contribution

= 1,40,000 - 28,000
= 112000
● Sales required to earn a profit of 20,000
= Fixed cost +desire profit = 12,000 + 20,000 = 1,60,000

P/V Ratio (20 /100)

Important: INTRODUCTION TO MANAGEMENT ACCOUNTING (Theory) (Minimum 25marks)

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Important: INTRODUCTION TO MANAGEMENT ACCOUNTING (Theory) (Minimum 25marks)

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CHAPTER 1

INTRODUCTION TO MANAGEMENT ACCOUNTING (Theory) (minimum 25marks)

2015 2016 ( ____ means no loss or profit)

Sales 76,000 1,30,000

● P/V ratio = Changes in profit x 100

● Contribution = Sales x P/V ratio

BEP = 20,000 = 20,000 = 1,00,000

● Profit when sales are of Rs 1,20,000

Profit = Contribution - Fixed cost

Note : As the Sales changes contribution also changes

Contribution = Sales x P/V ratio

Loss = Fixed Cost - Contribution

Here sales changed so we need to find the contribution

Contribution = Sales x P/V ratio

= Fixed cost +desire profit = 20,000 + 100,000 = 1,50,000

● Margin of safety 2016

Margin of safety, MOS = Actual sales - BEP

Problem 3 Note: here, instead of Profit, Total cost is given

Period sales Total cost

Profit = sales - total cost

For period 1 …….. 1,20,000 - 108000 = 12,000

● P/V ratio = Changes in profit x 100

= 16,000 - 12,000 x100 = 4000 x 100

Contribution = Sales x P/V ratio

BEP = 12,000 = 12,000 = 60,000

Contribution = Sales x P/V ratio (for period 2)

Variable cost = Sales - contribution

● Sales required to earn a profit of 20,000

= Fixed cost +desire profit = 12,000 + 20,000 = 1,60,000

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