Page 34 - Cost Accounting - Ready Reckoner

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Sales to earn a desired amount of Profit:

+
In ₹ =
/

+
In Units =
/

Limiting Factor Decision:

When a particular resource is limited in supply, we try to make best use of the
available resource.

Limitation of a resource can be in terms of:

1. Raw material availability
2. Labour hours limited
3. Machine hour constraint
4. Sale value limited
5. Sales in units limited

Thus in the above cases, contribution/unit is divided by the limited resource to
arrive at Contribution/ limiting factor.

Ranking of products is based on highest contribution of a product out of limited
resources and allocation of resources to products is based on the ranking.

Sl.No. Limited Resource Ranking Factor
1 Raw Material Availability Contribution per unit of Raw Material
2 Labour hours limited Contribution/ Labour hour
3 Machine hour constraint Contribution/ Machine hour
4 Sale value limited P/V ratio
5 Sales in units limited Contribution/ unit

Note:

 When an export order is considered for evaluation, additional fixed cost will be
incurred only if there is expansion of capacity.
 When there is change in Volume, there is no change in P/V ratio.