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Introduction Let us start our discussion with a costing framework suitable for decision making. The cost statement discussed so far is based on the principle of absorption costing. An alternative costing framework is marginal costing or variable costing. Ex...

Introduction We started our discussion on fixed and variable costs and how they influence cost. Let's explore further into the behavior of costs. Cost Items in a Cost Sheet Material Cost (Variable Cost) Varies based on volume. No production → no material c...

Introduction Your friend owns an ice-cream shop. She is concerned because two more shops have opened in the same area. Some customers may shift to these new shops. She wants to know how many units she must sell to avoid losses. Ice Cream Shop Case: Break-Ev...

Single-Product BEP: Fortune Pharma Example Selling Price: ₹240 per case Variable Cost: ₹200 per case Contribution: ₹40 per case Fixed Cost: ₹20,00,000 Break-even Volume: Break-even Quantity = Fixed Cost / Contribution per unit = 20,00...

Importance of Pricing Strategy Pricing is crucial in competitive markets. Aggressive pricing boosts sales but may lower profitability. Pricing strategy depends on: Market conditions Nature of order/customer Cost structure Role of Marginal Costing in Pri...

Facing Competition Through Cost Leadership Firms achieve cost leadership by: Outsourcing non-core activities Restricting activities to core components/functions Helps improve cost competitiveness and strategic focus When to Outsource? (Decision Criteri...

Why Do Firms Close Down Products or Divisions? Due to negative contribution (sales price < variable cost) Products or divisions not contributing to fixed costs or profits Such units may reduce overall profitability Justifiable only for strategic reasons (e....

Ideal vs Real World Ideal World: Unlimited resources Equal contribution margins All customer orders accepted Real World: Resources are limited Products require different resource quantities Contribution margins vary We must optimize the product mix f...

Why Talk About Risk? So far, we focused on maximizing contribution margin. But business also involves risk, and managers must be aware of: Operating Risk – arises from fixed costs Financial Risk – arises from borrowing (interest payments) Key Definitions ...

The Situation: A Meeting at the Company Girish (President) Praised the company’s performance — new customers, near full capacity, overtime production. Called the meeting to address financial warning signs raised by CFO. Marketing Success Noothan (Marketing ...

What is a Vision Statement? A Vision Statement describes what the company wants to become in the long run. It is aspirational and meant to guide strategic direction. Example: “Asian Paints aims to become one of the top five decorative coatings companies wor...

What is Budgeting? Budgeting is a structured planning process developed over time. It involves all departments and functions within the organization. It ensures that departmental goals align with organizational objectives, reducing internal conflicts. Mast...

📌 Why Different Types of Budgets? Organizations face different operational needs, resource constraints, and external uncertainties. To address this, multiple budgeting approaches are adopted, each with a distinct purpose. 1. Flexible Budget Used when there i...

Budgeting is not just about forecasting numbers—it is a strategic management tool that guides planning, coordination, and control within organizations. Below are the major benefits of formal budgeting exercises: 1. Roadmap to Achieve Organisational Goals Act...

1. Imposed Budget Also known as Top-Down Budgeting Suitable for: Start-ups Small businesses Times of economic crisis Situations where managers lack budgeting skills Characteristics: Budget is prepared by top management or a central team Lower-level manag...

1. Sales Forecast Month Last Year Sales (KG) Forecasted Sales (KG) Selling Price (Rs./KG) April 80,000 120,000 140 May 100,000 150,000 140 June 60,000 100,000 120 (Rs. 20 dealer discount) July* — 60,000 — June is a slack season. July data used...

1. Planning and Controlling in Budgeting Planning is the primary objective of the budgeting exercise. Controlling is a natural extension of planning. Budgets are used to evaluate the performance of departments and managers. Actual data is compared with budg...

1. Role of Budget in Performance Monitoring Budgets are prepared as part of the planning process. Once finalized, the budget document is shared with respective managers. Managers are expected to perform their activities in line with the budget. Periodically, ...

1. Importance of Setting Standards Standards are critical for effective control in budgeting. Too high standards → demotivation. Too liberal standards → no cost control; standards lose meaning. Ideal standards must be: Reasonably accurate Achievable wit...

1. Purpose of Variance Analysis Compares actual performance with budgets and standards. Helps managers: Evaluate current status Initiate corrective actions Known as Variance Analysis 2. Components of Cost Every cost has two components: Quantity (Usag...