Managerial Accounting Questions Answers | What is meant by equivalent Production?

1)    Margin of safety?


The sale after breakeven is the difference between your actual or expected profitability and the breakeven point.   

2)    Material price variance?


Direct material value change is the contrast between the standard expense and the real expense for the genuine amount of material bought. It is one of the two parts (th other is immediate material utilization fluctuation) of direct material all out the difference.

3)    Breakeven?


Breakeven is the point of sale where there is no loss and no profit. The breakeven point is the level of production at which the costs of production equal the revenues for a production.

4)    Concept of process costing and job-order costing?


Process costing:

In process costing, products are homogeneous; departments are involved in this process. Inventory is there all the time, firstly products are made then sale. Agencies produce the products then locate the customers on the market.

Job Order Costing:

In job order costing, products are heterogeneous (different) each product has different features, products are made based on the order placed. Firstly Companies receive orders than on the basis of the order they produce products.



Equivalent production is the concept of process costing.

If less production & more sales. Its mean we sell from existing inventory. So, the results are different from the previous case.

Now, less price inventory of marginal costing in CGS & Less expenses show & profits of marginal costing is more in absorption costing.

  1. On the off chance that there is no stock, there will be No distinction in both the techniques, which implies peripheral costing and retention costing.
  2. On the off chance that stock is expanding, at that point retention costing will give higher benefits when contrasted with the peripheral costing.
  3. On the off chance that stock is diminishing, at that point, negligible costing will give higher benefits as looked at the retention costing.

 That is all because of the treatment of fixed FOH like period cost or product cost.

·        If production and income are equal or 0 inventory, then both techniques give the same consequences.

·         If production inventory increases & sales decreases then absorption costing provides more profits. More inventory results & more figure transfer in the balance sheet, whereas in marginal costing all fixed FOH enter in expenses than fewer inventories, less profit.

·         No of units completed with respect to each element of cost.  

6)    Concept of Absorption Costing & Marginal Costing?


Marginal costing/ Variable Costing:

Marginal costing is also called direct costing. It is the cost that is recorded in the period in which it is incurred as an expense. It includes direct material, direct labor, and variable FOH, like product cost while fixed FOH is treated as a period cost, it is also treated as an expense in its entire period.

Absorption costing/ Full Costing:

In absorption costing’ direct material, labor, variable FOH, and Fixed FOH are treated as product cost.

In absorption costing, fixed FOH is added to lower expenses so the profit may be higher. Resultantly, profits will be higher in absorption cost rather than in marginal costing.

7)    What is the relation between Inventory and both Methods of Costing?


The connection of stock with FIFO strategy is that here we deal with the rest of the stock first then we will go for additional new stock. FIFO Method accepts that stock bought or fabricated first is sold first and that the most up to date stock. 

Normal costing is utilized to follow stock costing by means of normal expense, or by averaging the expenses of the considerable number of amounts that are availably partitioned by the all-out expense of those buys.

8)    What are the Methods to calculate Breakeven?



A level of sale at which the company earns zero profit. There are Two Methods of calculating Breakeven:

A.    Equation Method

B.     Formula Method

·       Equation Method:

Q=Fixed Cost/ (P-Variable Cost)

·       Formula  Method:

9)    What is the concept of contribution margin?


The difference between sales revenue minus variable cost. It tells us how much of the revenue will be available for the fixed cost and net income/Operating profit.

10)            What is the Concept by Target Profit and how it is calculated?


Sales for a Target Profit.

11)            What Is the Concept of Leverage?


The optimal use of fixed cost to maximize the profit.

There are two types of leverage.

·         Operating leverage

·         Financial leverage

12)            How Degree of Operating Leverage Calculated?


13)            What is the Concept of Multiproduct breakeven?


Breakeven of a company having more than one product, Fixed costs are normally incurred for all the products hence a need to compute for the composite or multi-product breakeven point.

14)            Write down the Concept of Cost Driver and Cost Pool?


Cost Pool:

A cost pool is a gathering of individual costs, regularly by office or administration focus, cost pools are normally utilized for the distribution of processing plant overhead to units of creation. 

Cost driver:

Cost drivers are on the whole of the exercises that you do that cost you cash to make your item. Your cost pools are your cost drivers partitioned into gatherings of related expenses.

15)            Standard Costing, What is meant by MBE?


Management by Exception:

When actual performance is compared with standard performance, it is called MBE.

                                              Actual      Vs.       Standard

16)            What are the different types of Budgets?


1.     Static budget

2.     Flexible budget

3.     Zero-based budget

4.     Rollover/ continuous budget

5.     Functional budget

6.     Master (Production, Purchase, Labor, FOH, Selling & Admin Expenses)

17)            What is meant by Flexible Budget? & why it is calculated?


The budget is for the actual level of activity as well as a budget in which change would be possible according to the conditions, it is also called the revised budget.

18)            How Relevant Cost Effects The Decisions?


Important expense is an administrative bookkeeping term that depicts avoidable costs that are caused just when settling on explicit business choices. 

The idea of applicable expense is utilized to wipe out superfluous information that could entangle the dynamic procedure.

As an example: the relevant cost used to determine whether to sell or keep a business unit.

19)            What is meant by relevant Cost?


The cost is relevant to decision-making. This cost depends upon whether we make a decision or not.

20)            Reverse Calculations of different Variances, labor Hours Find?


Work Spending Variance = Labor Rate Variance Labor Efficiency Variance

Labor rate variance = (AH×AR)-(AH×SR)

Labor efficiency variance=(AH×SR)-(SH×SR)

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