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Variable costs are relevant and fixed costs are irrelevant?
Generally variable costs are relevant costs but if due to any decision fixed costs are also going to affected then fixed costs are also relevant costs.
What are benefits of marginal costing?
Marginal cost is the extra cost incurred in producing one unit of a product.If the marginal cost is more than average cost that means that costs are increasing and if it is less it means costs are decreasing.This way we find out how are business is progressing.
Under marginal costing is fixed cost calculated from the number of units sold?
Under marginal costing, fixed costs are not calculated based on the number of units sold but are treated as period costs that are expensed in full in the period incurred. Marginal costing focuses on variable costs associated with production, allowing for analysis of contribution margin per unit. Fixed costs remain constant regardless of sales volume and do not affect the marginal cost of producing additional units. Therefore, the emphasis is on variable costs in decision-making rather than fixed costs tied to sales volume.
Why are fixed costs are irrelevant in profit maximization decision?
Fixed costs are considered irrelevant in profit maximization decisions because they do not change with the level of production or sales; they remain constant regardless of output. Profit maximization focuses on marginal costs and marginal revenues, which directly impact decision-making. Since fixed costs do not influence the marginal analysis, they do not affect the optimal output level. Thus, decisions should be based on variable costs and revenues that fluctuate with production levels.
State the arguments for using marginal costing approach in routine accounting?
- The Marginal costing technique is appropriate for decision making as it highlights those costs (and revenues) which will change as a result of the decision under review being put into effect. - As fixed costs are mostly overheads, and, under marginal costing these are all treated as period costs and charged into the income statement therefore marginal costing avoids arbitrary allocation of overheads to units of output. - Reporting profit on a marginal costing basis will be more closely relates to changes in sales volume and are less affected by changes in inventory levels. - An understanding of the behavior of costs and the implications of contribution is vital for accountants and managers as the use of marginal costing for decision making is universal.
Which ratio shows an organizations effectiveness in minimizing production costs?
There are two measures of production costs: total costs and marginal costs. The relevant ratio depends on which of these is being minimised.
Where could one learn about marginal costs?
One is able to learn about marginal costs at several different places online, such as at the following websites: the Wikipedia Marginal Costs webpage, Marginal Cost, and Margins.
Profits will be maximized when marginal revenue?
Profits will be maximized when marginal revenue is equal to marginal costs. This will only happen in cases where there are fixed costs.
Rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs?
Rational Decision making occurs when marginal benefits of an action exceed the marginal costs
A producers profits are maximized when marginal costs are .?
equal to marginal revenue
A producers profits are maximized when marginal costs are?
equal to marginal revenue
How can marginal revenew and marginal costs help set the most profitable putput level?
The most profitable output level is when marginal costs equals marginal revenue. When marginal revenue is larger than marginal cost, that means that more product can be produced for more profit.
If you have Marginal Cost and Marginal Damages how do you find the optimal level of output?
The optimal level of output is where marginal costs = marginal damages.
What Economists say that choices involves comparing?
Marginal benefits and marginal costs
Where will A profit maximizing firm produce?
Where the marginal benefits equal marginal costs.
A company is maximizing profit when marginal revenue?
A company maximizes profits when marginal revenue equals marginal costs.
When marginal costs are below average cost at a given output one can deduce that if output increases what happens?
when marginal costs are below average cost at a given output, one candeduce that, if output increases dose average costs fall or marginal costs will fall
