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LAW OF EQUI MARGINAL UTILITY The Law of Equi Marginal Utility was presented in 19th century by an economists H. H. Gossen. This is known as Gossen’s Second law of consumption. This law is based on the principle of obtaining maximum satisfaction from a limited income. It explains the behavior of a consumer when he consumes more…
LAW OF DIMINISHING MARGINAL UTILITY The Law of Diminishing Marginal Utility states that the amount of satisfaction provided by the consumption of every additional unit of a good decrease as we increase the consumption of that good. Marginal Utility is the change in the utility derived from the consumption of an additional unit of a…
UTILITY ANALYSIS The simple meaning of ‘utility’ is ‘usefulness’. In economics utility is the capacity of a commodity to satisfy human wants. Utility is the quality in goods to satisfy human wants. Thus, it is said that “Wants satisfying capacity of goods or services is called Utility.” ACCORDING TO PROF. WAUGH “Utility is the power of…
TOOLS AND TECHNIQUES OF MARGINAL COSTING Marginal costing is a technique of ascertaining cost used in any method of costing. According to this technique, variable costs are charged to cost units and the fixed cost attributable to the relevant period is written off in full against the contribution for that period. Contribution is the difference…
BREAK EVEN POINT Break-even point is a point where the total sales or revenue are equal to total costs. In breakeven point, there is no profit or loss in the volume of sales. In other words, it is a point at which no profit no loss situation prevails in the operating activity of a business…
PROFIT VOLUME RATIO The Profit Volume Ratio shows percentage of contribution to the sales value i.e. margin as percentage of sales out of it; the fixed cost is met and there is a profit. It is one of the tools used in marginal costing. The Profit Volume (P/V) Ratio is the measurement of the rate…
CONTRIBUTION Contribution margin of a product is the difference between the selling price and its variable cost. It is obtained by subtracting marginal cost from sales revenue of a given activity. The difference between sales revenue and variable cost is called contribution since it contributes towards fixed expenses and profit of the entire business. It…
BREAK EVEN ANALYSIS GRAPH Break even analysis graph Break even Analysis is the analysis of three variables viz. Cost, Volume and Profit, which explores the relationship existing amongst Costs, Revenue, Activity Levels and the resulting Profit. It is also known as Cost Volume Profit Analysis. ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON “CVP the…
BREAK EVEN ANALYSIS Break Even Analysis is the analysis of three variables viz. Cost, Volume and Profit, which explores the relationship existing amongst Costs, Revenue, Activity Levels and the resulting Profit. It is also known as Cost Volume Profit Analysis. ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON “CVP the study of the effects on…
LIMITATIONS OF COST VOLUME PROFIT ANALYSIS Cost‐Volume‐Profit Analysis is the analysis of three variables viz. Cost, Volume and Profit, which explores the relationship existing amongst Costs, Revenue, Activity Levels and the resulting Profit. ACCORDING TO CHARTERED INSTITUTE OF MANAGEMENT ACCOUNTANTS, LONDON “CVP the study of the effects on future profit of changes in fixed cost,…
