Management Accounting- Contribution and P/v Ratio

The Profit/volume ratio, which is also called the ‘contribution ratio’ or ‘marginal ratio’, expresses the relation of contribution to sales and can be expressed as under:

P/V Ratio = Contribution/Sales Since Contribution = Sales – Variable Cost = Fixed Cost + Profit, P/V ratio can also be expressed as: P/V Ratio = Sales – Variable cost/Sales i.e. S – V/S or, P/V Ratio = Fixed Cost + Profit/Sales i.e. F + P/S or, P/V Ratio = Change in profit or Contribution/Change in Sales
This ratio can also be shown in the form of percentage by multiplying by 100. Thus, if selling price of a product is Rs. 20 and variable cost is Rs. 15 per unit, then P/V Ratio = 20 – 15/20 × 100 = 5/20 × 100 = 25% The P/V ratio, which establishes the relationship between contribution and sales, is of vital importance for studying the profitability of operations of a business. It reveals the effect on profit of changes in the volume. In the above example, for every Rs. 100 sales, Contribution of Rs. 25 is made towar…

Cost Accounting Types of Cost

Different types of Costs in Cost Accounting One can understand the cost accounting properly only after knowing various types of cost. Hence, the understanding of types of cost enables proper application of cost accounting principles. Therefore, certain types of cost are briefly explained below. 1. Historical Cost It is the post mortem of cost, which is already incurred. This type of cost reports the past events. If the time lag between the cost incurred time and reporting time is very short, quality decision may be taken. If not so, these costs are irrelevant for decision-making. 2. Future Cost These types of costs are expected and incurred in the days to come. 3. Replacement Cost Replacement cost is the cost required to replaced any existing asset at present. 4. Standard Cost Standard cost is a scientifically predetermined cost, which is arrived at assuming a specific level of efficiency in material utilization, labor and indirect expenses. 5. Estimated Cost Estimated cost is an assessmen…

Sale of Goods Act-Transfer of Ownership in goods including Sale by non-owners

► Transfer of Ownership in goods including Sale by non-owners An essential part of the Sale of Goods Act is the Transfer of Property, which passes from the seller to the buyer.  Possession is different from ownership, and these must be distinguished. Whereas a person may be the righteous owner of goods, he may not have the goods in his/her possession.  An agent, for example, is not the owner of the goods, he is in possession of, on behalf of the seller.  When there is a passing or transfer of property in the form of goods, the element of risk also passes. The essential aspect is the ‘ownership’ of the goods.  This is because several rights and liabilities of the transacting parties are directly connected with the issue of ownership. Usually, a contract of Sale takes place over a period of a few hours, a few days, or even a few months. During such time, there can be events which result in the entire contract of sale being affected.  The goods may be damaged, or destroyed, or lost in tran…