Students - I woudl like to start concept discussion in this forum for final students. While doing marginal costing - Key factor problems -we need to first understand the concept clearly. Marginal costing is not rocket science for us to find it difficult.
Final students should be very clear in basics - of Marginal costing.
Most often when i ask students.What is contribution..
Sir..this is like profit or from contribution we get profit.
I dont blame the students but its important that basic is understood by way of concepts and not as a formulae.
I want to discuss here the concept -" Key factor"
Key factor is one which is short in supply or Constraint or not available in abundance. So when we review a problem - on costing - Key factor - try to understand this with an example which you are familiar in your home or office environment.
For ex : If at home we try to make some food - All ingredients are required and expert to cook is also required the same. When one of them is not available that becomes the Key factor or one of them availability is in short supply that is key factor. So we take a decision on what we need to do as alternative in such scnearios.
Similarly in Costing problem - The "key Factor" has to be associated with the terms - not available in abundance, Constraint, Limited etc. Once we identify the Key factor then its about how we look at solving the issue by understanding the Contribution per unit on Key factor and rank the same on priority
Ranking helps us to decide where we can deploy the resources ( for ex : IN Army there are different skill sets of people required for a battle. The commander decide - what the key factor for that situation and deploys resources available to him so that he can manage the situation).
In the business where the objective is for profit - we have to deploy resources where we can get max contribution per unit based on Key factor and then look for alternatives if we can outsource the requirements or Buy the product from others. Thats the next step on decision making.
Happy learning
Regards,
Satish.
CAclubindia
