In the study of accounting and financial management CVP analysis is very important in measuring the relationship among the variables with profit

Profit is the main objective of any business organization. To earn a lot of money is the objective of a business. Revenue earning is related with profit. How much the company will make profit depends on some variables. These variables are cost, volume of output, price of the product, price index, etc. All of these variables also are interrelated with the externally active force. In the study of accounting and financial management to make these relationship is very important. An accountant or other operation manager is responsible to search and establishe thes relationships. These wuestion is very common for all of the business ownerd to predict an effective answer to gain large revenue. These are just like what will be the profit from the business organization. What volume should be produce? What will be the cost of the business operation. CVP analysis search these answers. CVP analysis can easily and can say Cost Volume Profit analysis. CVP analysis explain the effects of cost and output of the production on the profit of the business.

Break even analysis

Break even analysis is a system that determine an activity of organization where the total cost is equal to the total selling price. Simply to say that break even analysis is an activity of identifying the break even point. It is an identification and determination of the point where business performance is in no profit and no loss condition. For a smooth business operation break even point is very important for management and organization. Break even analysis identifies breK even point. It helps managers for an effecting business forcasting.It helps managers in effective pricing policies implementation.

Break Even Point

Break even poit refers such level of poit where the total cost of the goods is equal to the selling price of the goods. Break Even Poit highlights that there is no profit and no loss. If the selling price exceed to the upper of the point then it can say that business have gain some profit. On the other hand the lowest value that lies below the break even point indicate that business have losses. The break even point is expressed as BEP. There are different formula of calculating break even point in output and selling price. In terms of output volume the break even point is equal to the fixed cost devided by the contribution per unit. On the other hand in terms of selling price break even point is fixed cost devided by total contribution multiplied eith total selling price. If that is extended than it is to say that the break even point in terms of selling price is fixed cost devided by P/V ratio.

Difference between an accountant and an economist in terms of calculating monetary value

In terms of calculating the monetary value account conceot is so far different from an economist. Where an economist considers the inflation of the money there an accountant necer consider the inflationary value if money. Not only that when an accountant accounts the total earning of your business organisation there an economist consider the money if you were do job in other organisation instead of spending time in your organisation. In this case an economist consider the the value of your labour as the capital of the organisation that is added with all other capital. The value of the money of today is not equal with the value of the money of ten years past.

Marginal cost

Marginal cost is the cost of production of aditional per unit of product. The production cost are found to change in per unit with the increasing of total volume of output of the product. Let us explain marginal cost with an example. Let you are producing 100 pices of any specific product with the cost of 1000$. You increased your production volume of output into 150 pices and the cost is 1200$. The increased cost is about 200$. Increased output is 50 pices. The cost of per unit of output is 4$. But before increasing the output cost of per unit of production was 10$. Hence, it is clear that the cost of per unit of output is changed with the change of total volume of output.

Economist concept of marginal cost vs accountant concept of marginal cost

The concept of marginal cost is not same when an accountant and an economist calculate marginal cost.  An economist define marginal cost is the cost of producing an aditional unit of product. In this case the fixed cost is considered. On the other hand when an accountant calculates marginal cost he never consider fixed cost. An accountant considers marginal cost is constant in per unit of output when aditional number of production is produced. This is not applicable in front of an economist.  In a mote analysis it is found that in increasing of the number of output the cost of the product of per unit of output is decreased. If we plot a graph the cost per unit of output vs production unit, we will find a graph production cost of per unit of output is decreases gradually. With an equation marginal cost can be calculated by substracting fixed cost from total cost.

Shut down cost

In a business there have some indirect cost besides of direct cost. Shut down cost is a well known indirect cost. In different uncertain or certain type of cause a company or any organization may shut down. The all of the activities of the organization may stop. These may be caused by labour strite, uncertain shut down of any machinaries activities or other causes. In this case some indirect cost are arise in the business organization. In managerial decision making process these type of cost of any organization must have to under considered. Suppose a company in a shut down possition the salaries of the management and other employees are a continuous process. These are considered as the cost in accounting. If the sbut down cost of a business organization is take under considerition then the future efficiency of the company increases and it significantly reduces risk of the company.

Opportunity cost

Opportunity coat one kind of indirect cost. Opportunity coat means cost for futuer better opportunity. But the meanings is too much complex. Something cost for future beter opportunity cannot be the opportunity cost. Exactly and to the point to say that opportunity cost is such kinds of sacrefice to achieve a future better opportunity.

Sunk cost

Sunk cost is a past cost in accounting. Usually the cost of purchasing machineries is termed as sunk cost with some conditions. Just for example you purchased a machine with 20000 dollar to manufacture product. It is able to save 10000 dollar in its useful life from other cost. After a few days you sold this with 14000 dollar. You gained 4000 dollar. But in this case 20000 dollar is considered as sunk cost.

Depreciation techniques

Most common depreciation techniques are depreciation on strsight line method and depreciation in written down value method. In a straight line method of depreciation an upward straight line is found where depreciation follows an equal proportional rate. On the other hand in written down value method of depreciation the amount of depreciation charged is less than the previous year.  The annual dpereciation under the straight line method is a straight line parallel with the base line if we plot depreciation vs useful life of a product. On the other hand the accumulated depreciation under straight line method will an upward straight line. If we plot written down value s the useful life we will find a downward straight line with increasing of time. But in the method of written down value annual and accumulated depreciation will not be a straight line.

Realisation and recognition in accounting concept

Realisation is an important topics in accounting that is used in income measurement. According to general accounting concept realisation means converting non cash into cash. Realisation is used in recognition of the revenue. For example the recognition of revenue from sales is realised. Realisation not only recognise revenue, but also it recognise the expiration of cost. Revenue is recognised when the sales is happend but it not realised. Only then the revenue will realised when selling price eill be collected.

Absorption costing and marginal costing

Absorption costing is a traditional costing method. In absorption costing fixed and variable cost both are considered. In this method of costing manufactured product plays a vital role in identification of costs. In seasonal business absorption costing may show odd result. It also may inspired the rejection of a profitable business. On the other hand in marginal costing techniques only variable cost are considered. In marginal costing techniques fixed cost are charged with the revenue of the period. Hece the difference between absorption and marginal costing is found in recovery of fixed overheads and in valuation in inventories. In absorption costing techniques the recovery pf overheads are considered it it is fixed or variable overheads. Both of these  overhead are considers. On the other hand in marginal costing techniques only variable overhead is considered, but the fixed overhead is count in frofit and loss account. Work in progress and finished goods are consider as work cost and total cost in absorption techniques of costing. On the other hand  only variable cost are consider to account work in 0rogress.

Classification of cost

Cost are classified into Fixed cost, Variable cost, Semi variable cost and step cost mainly.  Fixed cost are such kinds of cost that is constant in per unit of time. With the increasg of the output the per unit cost is decreases. Another name of fixed cost is period cost. It is also divided into two class. These are commited fixed cost and discretionary fixed cost. Commited fixed cost is concerned with plant equipment and organization structure. Discretionary fixed cost is concerned with the management's decision. Just for example research and development cost, advertising cost budgets, production cost budgets, etc. Variable cost is directly proportional to the output and semi variable cost is proportional to the output but not directly proportional to the output. If fixed cost is found constant in a certain level and are found to jump in the next new level. Such behavior of cost is called step cost. Beside of these type of expanse there have another types of cost. These are indirect cost.

Bad debt expanse

Sales on credit is a well known business method to eatn money. The credit sales is recognised when a successful transaction is happened At the close of the accounting period is termed as assets. But company do not know if the customer will pay or not. It is difficult to know how much money will be able to collect. Customer may pay the full amount or may pay a partial amount. A few amout may be completely uncollected. To overcome these problem the uncollected amount are record as a bad debt expanse.

Current asset and current liabilities

Assets will be considered as current or long term that depends on the liquidity. As same as the liability is also depends on liquidity to define it as current liabilities or  long term liabilities. With definition of liquidity these assets can be termed as current asset these are about to convert into cash in nearby future. On the other hand these dues that have to pay within few times are also called current liabilities. In a balance sheet assets are listed in one side and in another side the liability and owners equity is listed. Few examples of current assets and current liabilities are given bellow. Cash is a current assets when it is
Prepared and available for companies operation. Cheque, currencies are an example of current assets. The cash which is not available in nearby transaction is not termed as current asset. Temporary investment such as securities, shares, debentures are current asset when it is available to sell when it is required for companies daily operations. Account receivables are current assets. The examples of current liabilities are accounts payable, acceptance and promisory note payable, accrued liabilities, estimated liabilities, contingent liabilities, etc.

Difference between FIFO and LIFO method

FFO and LIFO is a most used method in accounting. Both of these method is a strategy of charging the cost of the selling of materials. Both of these method concerned with the selling cost of goods. The abrebriation of FIFO is First in First out. On the other hand LIFO is Last in First out. From the definition of FIFO and LIFO anyone can easily make a difference between these strategy. In FIFO and LIFO method of charging the cost of good sold, the difference is found in procurement price of materials and in the value of closing inventories. But the summation of procured price and clossing inventories are same in both FIFO and LIFO method.

Expanse is not cost in Accounting concept

In Accounting cost and expanse is a complex term. These two term in accounting cost and expanse is not similar and a synonymous term. Cost and expanse are different in their meanings. In an accounting period the cost incurred for revenue is cost. A cost is become expanse when it is expired. Any unexpired expanse is termed as cost. An asset become expanse when it is used or consumed. A cost may be an expanse. The cost of inventory when it is sold become expanse. Generally cost can be termed as a scrifice to earn revenue. Any assets until completing its useful life is termed as cost. But it become expanse when it completed its useful life.