Partex

Assignment of Accounting

Submitted to: Md. Rashidul Islam

Faculty of Accounting

Dept. of Business of Administration

East West University

Course code- ACT201

Course tittle- Managerial Accounting

Submitted by : Raihan Ahmed

ID: 2011-1-10-340

Section-2

Question 1:

A loss making product can be produced and sold in profit using contribution margin method –to what extent do you agree and why?

Answer: Costing only applies variable manufacturing overhead. Fixed manufacturing overhead is Absorption costing applies all manufacturing overhead to production costs while they flow through Work-in-Process Inventory, Finished-Goods Inventory and expenses on the income statement while Variable expensed immediately as it is incurred under variable costing while it is inventoried until the accounting period during which the manufactured goods are sold under absorption costing.

Yes, I do agree with the statement. I do agree for the following reasons -

A) If company makes a negative profit it is making loss for the each units of its productions. Through the use of contribution margin the increase

in the amount of sales increase the total loses.

B) The company can also increase the price of the product which is making loss.

But if it is to increase its price it should consider if the customers will be willing to pay more money for the product.

* Suppose in year 1 ABC company produces 200 units. Per unit price is 100$. And the company fixed expenses are 15000$. Variable expenses are 50$.

contribution income statement of ABC company in year-1:

particulars | amount |

Sales ( 200*$100) | 20000 |

Deduct: variable expenses (200*$50) | (10000) |

Contribution margin | 10000 |

Deduct: fixed expenses | (15000) |

Net operating loss | (5000) |

If the...