Syllabus Overview

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View Syllabus Outline (7 topics)

Marginal Costing

1. Marginal vs. Absorption Costing

  • Marginal Costing: Only variable costs are charged to products. Fixed costs are treated as period costs and written off to the income statement.
  • Absorption Costing: Both variable and fixed manufacturing overheads are allocated to products, matching costs to inventory valuation.

2. Cost-Volume-Profit (CVP) Analysis

  • Contribution: The surplus of sales revenue over variable costs.
    • $\text{Contribution} = \text{Sales} - \text{Variable Cost}$
  • Breakeven Point (Units): The level of sales where the business makes zero profit and zero loss.
    • $\text{BEP (Units)} = \frac{\text{Fixed Cost}}{\text{Contribution Per Unit}}$
  • Profit-Volume (P/V) Ratio = $\frac{\text{Contribution}}{\text{Sales}} \times 100$

3. Decision-Making Scenarios

  • Make-or-Buy: Compare the variable cost of manufacturing an item in-house against the purchase price from an external vendor. If the external price is lower than our marginal cost, buying is preferred.