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Lesson Posted on 06 Mar Exam Coaching/ICWA Coaching
Karthikeyan
Qualified CMA having around 5 yrs of experience in Accounting field.
Cost structure refers to the types and relative proportions of fixed and variable costs that a business incurs. The concept can be defined in smaller units, such as by product, service, product line, customer, division, or geographic region. Cost structure is used as a tool to determine prices, if you are using a cost-based pricing strategy, as well as to highlight areas in which costs might potentially be reduced or at least subjected to better control. Thus, the cost structure concept is a management accounting concept; it has no applicability to financial accounting.
To define a cost structure, you need to define every cost incurred in relation to a cost object. The following bullet points highlight key elements of the cost structures of various cost objects:
i. Product cost structure:
ii. Service cost structure:
Some of the preceding costs can be difficult to define, so you may need to implement an activity-based costing project to more closely assign costs to the cost structure of the cost object in question.
You can alter the competitive posture of a business by altering its cost structure, not only in total, but between its fixed and variable cost components. For example, you could outsource the functions of a department to a supplier who is willing to bill the company based on usage levels. By doing so, you are eliminating a fixed cost in favor of a variable cost, which means that the company now has a lower break even point, so that it can still earn a profit at lower sales levels.
A knowledge of the capacity levels associated with the existing fixed cost structure can also allow a business to increase its profits by lowering prices sufficiently to maximize the utilization of a fixed cost item. For example, if a company has spent $100,000 on a high-capacity automated machine and it is currently only being utilized 10% of the time, a reasonable action would be to obtain more work to increase the amount of cash earned from that machine, even at prices that might normally be considered low. This type of pricing behavior is only possible if you have a detailed knowledge of the cost structure of a business.
read lessLesson Posted on 22/12/2017 Exam Coaching/ICWA Coaching
Vidyadhan Academy Pvt. Ltd.
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I. Multiple Choice Questions:
1. Which of these is/are recurring (indirect expenses)?
(a) Transit insurance and freight
(b) Octroi
(c) Advertisement
(d) Godown rent and insurance
2.X sends out goods to Y, costing Rs.1,50,000. Goods are to be sold at +33 1/3% of sale. The consignor asked consignee to pay an advance for an amount equivalent to 60% of sales value. The amount of advance will be
(a) 1,20,000
(b) 1,35,000
(c) 1,50,000
(d) None
3.Goods of the invoice value of Rs.2,40,000 sent outto consignee at 20% profit on cost the loading amount will be
(a) 40,000
(b) 48,000
(c) 50,000
(d) None
4.X of Mumbai sends out certain goods at cost +25%. Invoice value of the goods is Rs 2,00,000. 4/5thof the goods were sold by consignee at Rs 1,76,000. Commission 2% upto invoice value and 10% of any surplus above invoice. The amount of commission will be.
(a) 4800
(b) 5200
(c) 3200
(d) 1600
II. Fill in the blanks:
1. The person who sends the goods for sale on fixed commission basis is ______.
2.When the consignor sends goods to consignee he prepares a ________.
3.Delcredere commission is allowed to cover the risk of _________.
4.Where goods are sent on consignment, credit is given to _______ in the books of consignor.
5.Stock reserve is created to adjust ___________.
6.Extra commission given to the consignee, for making him responsible for bad debts this extra commission is known as __________.
III. True or false:
1.Goods sent on consignment account is of the nature of real account
2.Goods valued at invoice price refers to valued at lower price than its original cost
3.Balance in consignment account shows profit and loss on consignment
4.Profit and loss on consignment is retained / borne by consignor
5.The details contained in account sales are unsold stock left with the consignee
IV. Practical Questions:
Q.1 From the following particulars ascertains the value of unsold stock on Consignment.
Goods sent (1,000 kgs.) Rs. 20,000.
Consignor’s expenses Rs. 4,000.
Consignees non-recurring expenses Rs. 3,000.
Sold (800 kgs.) Rs. 40,000.
Loss due to natural wastage (100 kgs).
Q.2Mr. X, the consignor, consigned goods to Mr. Y 100 Radio sets valued Rs. 50,000. This was made by adding 25% on cost. Mr. X paid Rs. 5,000 for freight and insurance.
Mr. Y received all goods in good condition. He incurred Rs. 4,000 for freight and miscellaneous expenses and Rs. 3,000 for godown rent. He sold 60 sets for Rs. 50,000. Show the necessary ledger account in the books of Mr. X assuming that Mr. Y was entitled to an ordinary Commission of 10% on sales and 5% Del Credere Commission on sales. He also reported that Rs. 1,000 were provide bad.
read lessAnswered on 06/11/2017 Exam Coaching/ICWA Coaching
Karthikeyan
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Lesson Posted on 23/08/2017 Exam Coaching/CA Coaching Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching
Ca Prashanth Reddy
I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...
Lesson Posted on 19/08/2017 Exam Coaching/CA Coaching Exam Coaching/CA Coaching/IPCC Group 1 Exam Coaching/CA Coaching/IPCC Group 2
Restriction On Acceptance Of Cash Deposit From FY 2017-18
Ca Prashanth Reddy
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Lesson Posted on 31/07/2017 Tuition/BBA Tuition Tuition/BCom Tuition Tuition/MCom Tuition
Uses For Computers In Business World
Kousiki C.
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Lesson Posted on 31/07/2017 Tuition/BBA Tuition Tuition/BCom Tuition Tuition/MCom Tuition
Kousiki C.
Teaching is my hobby and not my profession. I have around 16 years teaching experience. I started my...
1. Meaning and Definition of Entrepreneur:
Lesson Posted on 30/03/2017 Exam Coaching/CA Coaching Exam Coaching/ICWA Coaching Tuition/MBA Tuition
Ca Prashanth Reddy
I enjoy teaching and interacting with students. Teaching is my passion, profession and hobby. Every student...
What are the four stages of formation of a company?
There are four stages in the formation of a company:
STAGE I- Promotion of a company
STAGE II- Registration and incorporation of a company
STAGE III- Raising of capital
STAGE IV- Commencement of business
What do you mean by ‘promotion of a company’ and ‘promoter’?
Promotion of a Company:
Promotion is the first stage in the formation of a company. Certain persons who wish to carry on some business come together to form a company.
These persons are known as promoters.
It refers to all those steps which are taken from the time of having an idea of starting a company to the time of actual starting of a company.
Meaning Of Promoter:
The relationship between the promoter and the company starts from the day the work of floating the company starts and continues up to the time the Directors take into their hands what remains to be done in the way of forming the company. Thus, the status of a promoter is generally terminated when the BOD has been formed and the Board starts governing the company.
read lessLesson Posted on 30/03/2017 Exam Coaching/CA Coaching Exam Coaching/ICWA Coaching Exam Coaching/Company Secratary (CS) Coaching
Consignment Meaning & Features
Ca Prashanth Reddy
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Meaning & Features Of Consignment
Meaning: Consignment means the transaction of sending goods by one person (called CONSIGNOR) to another (called CONSIGNEE) who is to sell those goods on behalf of the Ist person.
Features
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Lesson Posted on 28/03/2017 Exam Coaching/CA Coaching Exam Coaching/ACCA Exam Coaching Exam Coaching/ICWA Coaching
Ca Prashanth Reddy
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Working capital is defined as the excess of current assets over current liabilities.
Current assets are those assets which will be converted into cash within the current accounting period or within the next year as a result of the ordinary operations of the business. They are cash or near cash resources. These include:
The value represented by these assets circulates among several items. Cash is used to buy raw – materials, to pay wages and to meet other manufacturing expenses. Finished goods are produced. These are held as inventories. When these are sold, accounts receivables are created. The collection of accounts receivable brings cash into the firm. The cycle starts again. Current liabilities are the debts of the firms that have to be paid during the current accounting period or within a year.
These include:
Working capital is also known as circulating capital, fluctuating capital and revolving capital. The magnitude and composition keep on changing continuously in the course of business.
Generally the Working capital has its significance in two perspectives – ‘Gross working capital’ and ‘Net Working capital’.
Gross Working capital: The gross working capital refers to investment in all the current assets. The total of investments in all current assets is known as gross working capital.
Net Working Capital:
Need for Working Capital
The basic objective of financial management is to maximize shareholders’ wealth. This is possible only when the company earns sufficient profit. The amount of such profit largely depends upon the magnitude of sales. However, sales do not convert into cash instantaneously. There is always a time gap between the sale of goods and receipt of cash. Working capital is required for this period in order to sustain the sales activity. In case adequate working capital is not available for this period, the company will not be in a position to sustain the sales since it may not be in a position to purchase raw materials, pay wages and other expenses required for manufacturing the goods to be sold.
Working capital can be divided into two categories on the basis of time:
Permanent working capital represents the assets required on continuing basis over the entire year, whereas temporary working capital represents additional assets required at different items during the operation of the year.
Permanent working capital: This refers to that minimum amount of investment in all current assets, which is required at all times to carry out minimum level business activities. In other words, it represents the current assets required on a continuing basis over the entire year. Tandon Committee has referred to this type of working capital as “Hard Core current basis”.
The following are the characteristics of this type of working capital:
Permanent working capital is permanently needed for the business and therefore, it should preferably be financed out of long – term funds.
Temporary working capital: It refers to that part of total working capital which is required by a business over and above permanent working capital. It is also called variable working capital. Since the volume of temporary working capital keeps on fluctuating from time to time. In other words, it represents additional currents assets required at different times during the operating year. For example, extra inventory has to be maintained to support sales during peak sales period. Similarly, receivable also increase and must be financed during period of high sales. On the other hand investment in inventories, receivables, etc., will decrease in periods of depression. Temporary working capital is generally financed from short – term sources of finance such as bank credit.
Permanent working capital is fixed over a period of time, while temporary working capital is fluctuating. The permanent working capital is increasing over a period of time with increase in the level of business activity. This happens in case of a growing company. Hence, the permanent working capital line is not horizontal with the base line.
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