The document discusses key concepts in marginal costing such as marginal cost, marginal costing, direct costing, absorption costing, contribution, profit volume analysis, limiting/key factors, break even analysis, and profit volume charts. It provides definitions and explanations of these terms. It also compares absorption costing and marginal costing, highlighting differences in how they treat fixed and variable costs, inventory valuation, and measurement of profitability. Examples are given to illustrate calculation of contribution, profit-volume ratio, break even point using algebraic method, and profit at different sales volumes. The document is an overview of important concepts in marginal costing used for management decision making.
This document discusses key concepts in marginal costing such as marginal cost, variable cost, fixed cost, contribution, and absorption costing. It provides examples of how to calculate marginal costs and contribution margins. It also highlights the differences between marginal costing and absorption costing, such as how fixed costs and inventory valuations are treated. Specifically, marginal costing only includes variable costs in inventory and product costing, while absorption costing includes both fixed and variable costs. This allows marginal costing to focus on contribution and profitability.
Marginal costing considers variable costs and treats fixed costs as period costs. It is used to calculate break-even point, contribution, and profit-volume ratio. Break-even point is the level of sales or production units where total contribution covers total fixed costs. Contribution per unit is sales price less variable cost per unit. Profit-volume ratio expresses the percentage of each sales rupee that contributes to profit. Marginal costing is useful for decision making, pricing, product mix optimization, and performance evaluation.
This document provides an overview of marginal costing. It defines marginal costing as the additional cost incurred to produce one more unit of output, which is equal to the variable cost. It also notes that marginal costing is also known as variable costing. The document discusses how marginal cost is calculated and the assumptions of marginal costing. It outlines the advantages of marginal costing for management decisions. Finally, it explains key concepts of cost-volume-profit analysis including contribution, profit-volume ratio, break-even point, margin of safety, and differential costing.
Marginal costing focuses on variable costs and contribution margins to make decisions. It excludes fixed costs which do not change with production volume. The key concepts include contribution, break-even point, margin of safety, and relevant costs and revenues for decision making. Marginal costing is useful for pricing, product mix optimization, make-or-buy decisions, and other situations involving incremental costs and revenues. Case studies are provided to illustrate how to apply marginal costing principles to different business decisions.
Marginal costing is a technique that differentiates between fixed and variable costs. It considers only variable costs for decision making purposes. Some key points:
- Marginal cost is the cost of producing one additional unit of output and includes any additional variable costs.
- Marginal costing focuses on contribution, which is the amount of sales remaining after deducting variable costs. Contribution helps cover fixed costs and determine profit.
- Important ratios in marginal costing include contribution ratio, break-even point, and margin of safety. These ratios help management with decision making and performance evaluation.
- While marginal costing is useful for short-term decisions, it has limitations such as the difficulty in segreg
Marginal cost is the change in aggregate costs from increasing or decreasing output by one unit. Marginal costing involves differentiating between fixed and variable costs. Absorption costing includes all costs, resulting in different unit costs at different output levels, while marginal costing only includes variable costs. Cost-volume-profit analysis uses marginal costing concepts like contribution margin, break-even point, and margin of safety to aid managerial decision making regarding pricing, production levels, and profit planning.
This document provides an introduction to the concept of marginal costing. It defines marginal costing as accounting that distinguishes between fixed and variable costs, charging variable costs to cost units and writing off fixed costs against the total contribution. The document outlines the key features, advantages, and disadvantages of marginal costing. It also provides an example of calculating the break-even point and profit-volume ratio of a company called NHC Foods Ltd. The document concludes that marginal costing supports managerial decision making.
This document discusses key concepts in marginal costing such as marginal cost, variable cost, fixed cost, contribution, and absorption costing. It provides examples of how to calculate marginal costs and contribution margins. It also highlights the differences between marginal costing and absorption costing, such as how fixed costs and inventory valuations are treated. Specifically, marginal costing only includes variable costs in inventory and product costing, while absorption costing includes both fixed and variable costs. This allows marginal costing to focus on contribution and profitability.
Marginal costing considers variable costs and treats fixed costs as period costs. It is used to calculate break-even point, contribution, and profit-volume ratio. Break-even point is the level of sales or production units where total contribution covers total fixed costs. Contribution per unit is sales price less variable cost per unit. Profit-volume ratio expresses the percentage of each sales rupee that contributes to profit. Marginal costing is useful for decision making, pricing, product mix optimization, and performance evaluation.
This document provides an overview of marginal costing. It defines marginal costing as the additional cost incurred to produce one more unit of output, which is equal to the variable cost. It also notes that marginal costing is also known as variable costing. The document discusses how marginal cost is calculated and the assumptions of marginal costing. It outlines the advantages of marginal costing for management decisions. Finally, it explains key concepts of cost-volume-profit analysis including contribution, profit-volume ratio, break-even point, margin of safety, and differential costing.
Marginal costing focuses on variable costs and contribution margins to make decisions. It excludes fixed costs which do not change with production volume. The key concepts include contribution, break-even point, margin of safety, and relevant costs and revenues for decision making. Marginal costing is useful for pricing, product mix optimization, make-or-buy decisions, and other situations involving incremental costs and revenues. Case studies are provided to illustrate how to apply marginal costing principles to different business decisions.
Marginal costing is a technique that differentiates between fixed and variable costs. It considers only variable costs for decision making purposes. Some key points:
- Marginal cost is the cost of producing one additional unit of output and includes any additional variable costs.
- Marginal costing focuses on contribution, which is the amount of sales remaining after deducting variable costs. Contribution helps cover fixed costs and determine profit.
- Important ratios in marginal costing include contribution ratio, break-even point, and margin of safety. These ratios help management with decision making and performance evaluation.
- While marginal costing is useful for short-term decisions, it has limitations such as the difficulty in segreg
Marginal cost is the change in aggregate costs from increasing or decreasing output by one unit. Marginal costing involves differentiating between fixed and variable costs. Absorption costing includes all costs, resulting in different unit costs at different output levels, while marginal costing only includes variable costs. Cost-volume-profit analysis uses marginal costing concepts like contribution margin, break-even point, and margin of safety to aid managerial decision making regarding pricing, production levels, and profit planning.
This document provides an introduction to the concept of marginal costing. It defines marginal costing as accounting that distinguishes between fixed and variable costs, charging variable costs to cost units and writing off fixed costs against the total contribution. The document outlines the key features, advantages, and disadvantages of marginal costing. It also provides an example of calculating the break-even point and profit-volume ratio of a company called NHC Foods Ltd. The document concludes that marginal costing supports managerial decision making.
Marginal costing is a technique that differentiates between fixed and variable costs. It treats variable costs as product costs and fixed costs as period costs. Under marginal costing, only variable costs are considered in inventory valuation. Absorption costing treats both fixed and variable costs as product costs and includes a share of fixed costs in inventory valuation. The chapter provides definitions and concepts related to marginal costing, characteristics that distinguish it from absorption costing, and how profit is calculated differently under each method.
Absorption and marginal costing ppt @ bec doms bagalkotBabasab Patil
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Absorption costing results in a higher value of closing stock and reported profit compared to marginal costing. While absorption costing complies with accounting principles, marginal costing is more relevant for decision making as it considers only costs that change with changes in activity. Breakeven analysis examines the relationship between sales, costs and profits using contribution and is useful but has limitations as it assumes costs change linearly.
Marginal costing is a technique that focuses only on variable costs when calculating the cost of producing a product or service. It excludes fixed costs from the calculation. Under marginal costing, inventory is valued at variable cost rather than total cost. Marginal costing is useful for decision making, determining the breakeven point, and showing the contribution margin of each product. However, it can provide misleading results by ignoring fixed costs and is not suitable for large, long-term industries.
This document provides an overview of marginal costing and cost-volume-profit (CVP) analysis. It defines key terms like marginal cost, contribution, fixed and variable costs. It explains the differences between marginal and absorption costing approaches. The objectives and concepts of CVP analysis are outlined, including break-even point, margin of safety, contribution ratio and angle of incidence. Formulas for calculating items like break-even sales, break-even point and composite break-even point are presented. Advantages and limitations of marginal costing are listed.
The document discusses marginal costing and cost-volume-profit (CVP) analysis techniques for decision making. It defines marginal costing as the separation of total costs into fixed and variable costs to understand the effect of changes in output on profit. The key assumptions and terminologies of marginal costing like contribution, break-even point, profit-volume ratio, and margin of safety are explained. CVP analysis expresses the relationship between sales volume, costs, and profits and can be used to answer questions about break-even revenues, effects of price and cost changes, and achieving budgeted profit levels.
The document provides an introduction to marginal costing. Some key points:
- Marginal costing distinguishes between fixed and variable costs. Variable costs are considered product costs, while fixed costs are treated as period costs.
- Contribution is calculated as sales revenue minus variable costs. Contributions from all products are summed and fixed costs are deducted from the total contribution to determine profit.
- Marginal costing focuses on variable costs and contributions to aid short-term decision making, while absorption costing allocates both fixed and variable costs.
This document summarizes the key aspects of absorption costing and marginal costing. It discusses how absorption costing treats both fixed and variable manufacturing overheads as product costs, while marginal costing treats fixed overheads as period costs and only includes variable costs in decision making. Absorption costing results in higher closing stock values as factory overheads are included as product costs carried forward, while marginal costing uses lower closing stock values that only include variable costs. The document compares how each method treats fixed manufacturing overheads.
The document provides an overview of marginal costing techniques. It defines key terms like marginal cost, fixed cost, and variable cost. It explains the differences between absorption costing and marginal costing. Absorption costing includes both fixed and variable costs when calculating product costs, while marginal costing only includes variable costs and separates fixed costs. This treatment of costs helps marginal costing better aid in decision making by distinguishing relevant variable costs from irrelevant fixed costs.
Chapter 16-marginal-costing and cvp analysisAshvin Vala
Marginal costing and CVP analysis are important management accounting techniques. Marginal costing involves separating total costs into fixed and variable components. It focuses on variable costs and marginal costs. CVP analysis examines the relationship between costs, volume, and profits. It is used to determine the break-even point and margin of safety. CVP provides important information for decision-making, budgeting, pricing, and performance evaluation.
This document discusses different types of costs including fixed costs, variable costs, and semi-variable costs. It defines fixed costs as those that do not vary with output over a short period of time, variable costs as those that change directly with output volume, and semi-variable costs as being partly fixed and partly variable. Marginal costing is then introduced as a technique that analyzes costs and profits based on how they change with increases or decreases in output volume, differentiating between fixed and variable costs. The key assumptions and uses of marginal costing are also summarized.
Marginal costing considers fixed costs as period costs and does not apportion them. It reduces total period costs from total contribution to arrive at net profit. The results are the same as total costing, only the presentation differs. Semi-variable costs have fixed and variable components. Marginal costing is defined as accounting that charges variable costs to cost units and writes off fixed costs against aggregate contribution. Contribution is sales minus marginal costs. Profit-volume ratio measures profitability as contribution over sales. Break-even point is when contribution equals fixed costs. Marginal costing supports managerial decision making by evaluating a concern's position.
Marginal costing is an accounting technique that separates total costs into fixed and variable components. It only includes variable costs when determining the cost of producing an additional unit. This helps management compare costs between time periods and determine profitability. CVP (cost-volume-profit) analysis studies the relationships between selling price, costs, volume, and profits. It shows how costs and profits change with volume and can help with decision making, budgeting, and performance evaluation. While useful for short-term analysis, marginal costing has limitations such as difficulty separating fixed and variable costs.
The document discusses marginal costing and its advantages for managerial decision making. Marginal costing involves separating variable and fixed costs. It allows companies to determine contribution margins, break-even points, and margins of safety to aid in decisions around pricing, production levels, and profitability. The key advantage is it focuses on the impact of changes in output on profits. Some disadvantages are it understates inventory values and fixed costs are excluded from short-term decision making.
Marginal costing is a technique that differentiates between fixed and variable costs. It assigns only variable costs to cost units and writes off fixed costs for the period against total contribution. Contribution is calculated as sales revenue minus variable costs. Marginal costing is useful for decision making as it shows the effect on profit of changes in volume or product mix. Key aspects include classifying costs, calculating contribution, and using contribution to determine the break-even point where total revenues equal total costs. Marginal costing provides information on product and segment profitability without needing to allocate fixed overhead costs.
Marginal costing is a technique that classifies costs into fixed and variable costs. Only variable costs are considered in calculating the cost per unit of a product. The difference between sales revenue and variable costs is known as the contribution, which is used to cover fixed costs and determine profitability. Marginal costing helps managers make decisions around pricing, production levels, and profitability by focusing on the relationship between contribution and sales volume. The breakeven point is where total sales revenue equals total costs, indicating no profit or loss.
Cost-volume-profit (CVP) analysis is used to determine how changes in costs and sales volume affect a company's profits. It requires identifying all costs as either variable or fixed. CVP analysis explores the relationship between costs, revenues, and activity level to measure how costs and profits vary with sales volume. It is used for forecasting profits, budget planning, pricing decisions, determining sales mix, and more. The three elements of CVP are costs, volume, and profit. The break-even point is the sales volume where total revenue equals total costs. Relevant costs must differ between alternatives and affect the decision. Sunk costs do not affect decisions as they cannot be changed.
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Breakeven analysis determines the level of sales or production at which total revenue equals total costs. It can be used to calculate the breakeven point, target profit, margin of safety, and the impact of changes in costs, revenues, and profits.
Marginal costing is a type of flexible standard costing that separates fixed costs from variable costs. It is a comprehensive method for planning and monitoring costs based on resource drivers. Marginal costing ensures cost fluctuations from changes in operating levels are accurately predicted and incorporated into variance analysis. It has become widely accepted in business over the last 50 years. Marginal cost is the change in total cost from producing one more unit. It includes any additional costs to produce the next unit and varies depending on production levels and time periods considered. The relationship between marginal cost and economies of scale depends on whether average or marginal costs are falling or rising with production. Externalities can cause private and social costs to diverge.
This document discusses cost-volume-profit (CVP) analysis and its applications in business decision making. It defines fixed and variable costs and explains how CVP analysis explores the relationship between costs, activity levels, and profits. A key aspect of CVP is calculating the break-even point, which is the sales volume where total revenue equals total costs, resulting in zero profit. The document also outlines assumptions of break-even analysis and how to calculate break-even points using equations or graphs. It provides examples of using CVP to determine profit levels at different volumes and to calculate sales needed to achieve a target profit.
- Absorption costing and variable costing are two approaches to product costing. Absorption costing treats all manufacturing costs, including fixed overhead, as product costs. Variable costing only includes variable production costs as product costs and treats fixed overhead as a period cost.
- The main differences are that absorption costing includes fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost. Also, variable costing statements present expenses by behavior (variable vs. fixed) rather than function.
- Variable costing is more appropriate for internal decision making and analysis like break-even analysis, while absorption costing is appropriate for external financial reporting in accordance with GAAP.
Marginal costing is a technique that treats only variable manufacturing costs as product costs, while regarding fixed manufacturing overheads as period costs. It is helpful for managerial decision making and control by classifying costs as fixed or variable and determining profitability through contribution and cost-volume-profit analysis. Some key advantages include simplicity, meaningful reporting, ignoring the effect of fixed costs, and profit planning and cost control. Limitations include difficulties classifying some costs and not being suitable for external reporting or long-term decision making. Marginal costing differs from absorption costing in its treatment of fixed costs, stock valuation, impact on profits when sales vary, and emphasis on short-term decisions making and pricing.
This document provides an overview of marginal costing, including definitions, features, advantages, limitations, and differences from absorption costing. It also covers cost-volume-profit analysis, including concepts like fixed costs, variable costs, contribution, break-even point, margin of safety, and angle of incidence. Key points include:
- Marginal costing focuses on additional cost of producing one more unit and is useful for short-term decision making.
- It involves classifying costs as fixed or variable and calculating contribution.
- Cost-volume-profit analysis examines the relationship between costs, sales volume, and profits using various metrics like break-even point.
- Graphs like break-even charts can visually depict
Marginal costing is a technique that differentiates between fixed and variable costs. It treats variable costs as product costs and fixed costs as period costs. Under marginal costing, only variable costs are considered in inventory valuation. Absorption costing treats both fixed and variable costs as product costs and includes a share of fixed costs in inventory valuation. The chapter provides definitions and concepts related to marginal costing, characteristics that distinguish it from absorption costing, and how profit is calculated differently under each method.
Absorption and marginal costing ppt @ bec doms bagalkotBabasab Patil
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Absorption costing results in a higher value of closing stock and reported profit compared to marginal costing. While absorption costing complies with accounting principles, marginal costing is more relevant for decision making as it considers only costs that change with changes in activity. Breakeven analysis examines the relationship between sales, costs and profits using contribution and is useful but has limitations as it assumes costs change linearly.
Marginal costing is a technique that focuses only on variable costs when calculating the cost of producing a product or service. It excludes fixed costs from the calculation. Under marginal costing, inventory is valued at variable cost rather than total cost. Marginal costing is useful for decision making, determining the breakeven point, and showing the contribution margin of each product. However, it can provide misleading results by ignoring fixed costs and is not suitable for large, long-term industries.
This document provides an overview of marginal costing and cost-volume-profit (CVP) analysis. It defines key terms like marginal cost, contribution, fixed and variable costs. It explains the differences between marginal and absorption costing approaches. The objectives and concepts of CVP analysis are outlined, including break-even point, margin of safety, contribution ratio and angle of incidence. Formulas for calculating items like break-even sales, break-even point and composite break-even point are presented. Advantages and limitations of marginal costing are listed.
The document discusses marginal costing and cost-volume-profit (CVP) analysis techniques for decision making. It defines marginal costing as the separation of total costs into fixed and variable costs to understand the effect of changes in output on profit. The key assumptions and terminologies of marginal costing like contribution, break-even point, profit-volume ratio, and margin of safety are explained. CVP analysis expresses the relationship between sales volume, costs, and profits and can be used to answer questions about break-even revenues, effects of price and cost changes, and achieving budgeted profit levels.
The document provides an introduction to marginal costing. Some key points:
- Marginal costing distinguishes between fixed and variable costs. Variable costs are considered product costs, while fixed costs are treated as period costs.
- Contribution is calculated as sales revenue minus variable costs. Contributions from all products are summed and fixed costs are deducted from the total contribution to determine profit.
- Marginal costing focuses on variable costs and contributions to aid short-term decision making, while absorption costing allocates both fixed and variable costs.
This document summarizes the key aspects of absorption costing and marginal costing. It discusses how absorption costing treats both fixed and variable manufacturing overheads as product costs, while marginal costing treats fixed overheads as period costs and only includes variable costs in decision making. Absorption costing results in higher closing stock values as factory overheads are included as product costs carried forward, while marginal costing uses lower closing stock values that only include variable costs. The document compares how each method treats fixed manufacturing overheads.
The document provides an overview of marginal costing techniques. It defines key terms like marginal cost, fixed cost, and variable cost. It explains the differences between absorption costing and marginal costing. Absorption costing includes both fixed and variable costs when calculating product costs, while marginal costing only includes variable costs and separates fixed costs. This treatment of costs helps marginal costing better aid in decision making by distinguishing relevant variable costs from irrelevant fixed costs.
Chapter 16-marginal-costing and cvp analysisAshvin Vala
Marginal costing and CVP analysis are important management accounting techniques. Marginal costing involves separating total costs into fixed and variable components. It focuses on variable costs and marginal costs. CVP analysis examines the relationship between costs, volume, and profits. It is used to determine the break-even point and margin of safety. CVP provides important information for decision-making, budgeting, pricing, and performance evaluation.
This document discusses different types of costs including fixed costs, variable costs, and semi-variable costs. It defines fixed costs as those that do not vary with output over a short period of time, variable costs as those that change directly with output volume, and semi-variable costs as being partly fixed and partly variable. Marginal costing is then introduced as a technique that analyzes costs and profits based on how they change with increases or decreases in output volume, differentiating between fixed and variable costs. The key assumptions and uses of marginal costing are also summarized.
Marginal costing considers fixed costs as period costs and does not apportion them. It reduces total period costs from total contribution to arrive at net profit. The results are the same as total costing, only the presentation differs. Semi-variable costs have fixed and variable components. Marginal costing is defined as accounting that charges variable costs to cost units and writes off fixed costs against aggregate contribution. Contribution is sales minus marginal costs. Profit-volume ratio measures profitability as contribution over sales. Break-even point is when contribution equals fixed costs. Marginal costing supports managerial decision making by evaluating a concern's position.
Marginal costing is an accounting technique that separates total costs into fixed and variable components. It only includes variable costs when determining the cost of producing an additional unit. This helps management compare costs between time periods and determine profitability. CVP (cost-volume-profit) analysis studies the relationships between selling price, costs, volume, and profits. It shows how costs and profits change with volume and can help with decision making, budgeting, and performance evaluation. While useful for short-term analysis, marginal costing has limitations such as difficulty separating fixed and variable costs.
The document discusses marginal costing and its advantages for managerial decision making. Marginal costing involves separating variable and fixed costs. It allows companies to determine contribution margins, break-even points, and margins of safety to aid in decisions around pricing, production levels, and profitability. The key advantage is it focuses on the impact of changes in output on profits. Some disadvantages are it understates inventory values and fixed costs are excluded from short-term decision making.
Marginal costing is a technique that differentiates between fixed and variable costs. It assigns only variable costs to cost units and writes off fixed costs for the period against total contribution. Contribution is calculated as sales revenue minus variable costs. Marginal costing is useful for decision making as it shows the effect on profit of changes in volume or product mix. Key aspects include classifying costs, calculating contribution, and using contribution to determine the break-even point where total revenues equal total costs. Marginal costing provides information on product and segment profitability without needing to allocate fixed overhead costs.
Marginal costing is a technique that classifies costs into fixed and variable costs. Only variable costs are considered in calculating the cost per unit of a product. The difference between sales revenue and variable costs is known as the contribution, which is used to cover fixed costs and determine profitability. Marginal costing helps managers make decisions around pricing, production levels, and profitability by focusing on the relationship between contribution and sales volume. The breakeven point is where total sales revenue equals total costs, indicating no profit or loss.
Cost-volume-profit (CVP) analysis is used to determine how changes in costs and sales volume affect a company's profits. It requires identifying all costs as either variable or fixed. CVP analysis explores the relationship between costs, revenues, and activity level to measure how costs and profits vary with sales volume. It is used for forecasting profits, budget planning, pricing decisions, determining sales mix, and more. The three elements of CVP are costs, volume, and profit. The break-even point is the sales volume where total revenue equals total costs. Relevant costs must differ between alternatives and affect the decision. Sunk costs do not affect decisions as they cannot be changed.
This document discusses absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed and variable costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Breakeven analysis determines the level of sales or production at which total revenue equals total costs. It can be used to calculate the breakeven point, target profit, margin of safety, and the impact of changes in costs, revenues, and profits.
Marginal costing is a type of flexible standard costing that separates fixed costs from variable costs. It is a comprehensive method for planning and monitoring costs based on resource drivers. Marginal costing ensures cost fluctuations from changes in operating levels are accurately predicted and incorporated into variance analysis. It has become widely accepted in business over the last 50 years. Marginal cost is the change in total cost from producing one more unit. It includes any additional costs to produce the next unit and varies depending on production levels and time periods considered. The relationship between marginal cost and economies of scale depends on whether average or marginal costs are falling or rising with production. Externalities can cause private and social costs to diverge.
This document discusses cost-volume-profit (CVP) analysis and its applications in business decision making. It defines fixed and variable costs and explains how CVP analysis explores the relationship between costs, activity levels, and profits. A key aspect of CVP is calculating the break-even point, which is the sales volume where total revenue equals total costs, resulting in zero profit. The document also outlines assumptions of break-even analysis and how to calculate break-even points using equations or graphs. It provides examples of using CVP to determine profit levels at different volumes and to calculate sales needed to achieve a target profit.
- Absorption costing and variable costing are two approaches to product costing. Absorption costing treats all manufacturing costs, including fixed overhead, as product costs. Variable costing only includes variable production costs as product costs and treats fixed overhead as a period cost.
- The main differences are that absorption costing includes fixed manufacturing overhead as a product cost, while variable costing treats it as a period cost. Also, variable costing statements present expenses by behavior (variable vs. fixed) rather than function.
- Variable costing is more appropriate for internal decision making and analysis like break-even analysis, while absorption costing is appropriate for external financial reporting in accordance with GAAP.
Marginal costing is a technique that treats only variable manufacturing costs as product costs, while regarding fixed manufacturing overheads as period costs. It is helpful for managerial decision making and control by classifying costs as fixed or variable and determining profitability through contribution and cost-volume-profit analysis. Some key advantages include simplicity, meaningful reporting, ignoring the effect of fixed costs, and profit planning and cost control. Limitations include difficulties classifying some costs and not being suitable for external reporting or long-term decision making. Marginal costing differs from absorption costing in its treatment of fixed costs, stock valuation, impact on profits when sales vary, and emphasis on short-term decisions making and pricing.
This document provides an overview of marginal costing, including definitions, features, advantages, limitations, and differences from absorption costing. It also covers cost-volume-profit analysis, including concepts like fixed costs, variable costs, contribution, break-even point, margin of safety, and angle of incidence. Key points include:
- Marginal costing focuses on additional cost of producing one more unit and is useful for short-term decision making.
- It involves classifying costs as fixed or variable and calculating contribution.
- Cost-volume-profit analysis examines the relationship between costs, sales volume, and profits using various metrics like break-even point.
- Graphs like break-even charts can visually depict
Marginal costing is a technique that separates total costs into fixed and variable costs. It helps management make decisions by calculating indicators like profit volume ratio, break-even point, margin of safety, and indifference point. The document provides an example problem demonstrating how to use marginal costing to calculate these indicators and make decisions. It explains key concepts like contribution, variable costs, fixed costs, and how marginal costing varies from other costing techniques.
Marginal costing is a technique that classifies costs as either fixed or variable. Fixed costs remain the same regardless of production volume, while variable costs change directly with output. Under marginal costing, only variable costs are considered when calculating the unit cost of a product. The difference between sales revenue and variable costs is known as the contribution, which is useful for decision making like determining the breakeven point where total contribution covers total fixed costs. Marginal costing focuses on maximizing contribution by controlling variable costs and increasing sales volume.
This document provides an overview of marginal costing. It defines marginal costing as a technique that differentiates between fixed and variable costs to determine the effect of changes in volume or output on profit. Marginal cost is defined as the additional cost of producing one more unit. The key features, assumptions, and advantages of marginal costing are outlined, including how it is used for decision making, cost control, and determining profitability. Formulas for calculating break-even point, margin of safety, and other metrics using marginal costing are also presented.
This document defines and explains marginal costing. It states that marginal cost is the same as variable cost, which is the increase in costs from producing one additional unit within existing capacity. Marginal cost is calculated as direct materials, labor, expenses and variable overheads. It also explains the differences between absorption costing and marginal costing and how marginal costing is useful for decision making.
Marginal Cost Pricing and Subsidy of Transit in Small Urbanized AreasUGPTI
This study analyzed economies of scale and density as a rationale for subsidizing transit agencies in small urban areas. A long-run cost model was estimated that included the addition of external costs, such as environmental effects, and benefits. Results show that small urban transit agencies experience economies of scale and density. The study estimated the marginal social cost of providing service and the level of subsidies required to maximize social welfare. The results provide a justification for subsidizing transit. Included in the study is a survey of transit agencies in small urban areas regarding recent changes in fares, service levels, and funding.
This document discusses government intervention in markets. It covers reasons for intervention such as market failures from externalities, public goods, and imperfect information. It also discusses different policy tools governments use, including taxes and subsidies to correct externalities, regulations, and competition policy to address monopoly power. The goals are to increase social welfare by promoting more efficient resource allocation and addressing equity concerns.
El documento contiene el nombre del Colegio Nacional Nicolas Esguerra, el lema de la institución "Edificamos Futuro" y los nombres y número de cédula de dos estudiantes: Juan Camilo Arevalo y Cristian David Astorquiza con número 807.
Patrick McGuire has over 15 years of sales experience and a proven track record of growing revenue. He is currently a Sales Manager at Eco Duct Inc, where he has generated a 100% increase in revenue over 11 years. Previously, he held roles as a District Sales Manager and Production Manager. He has a strong ability to build relationships, negotiate contracts, and ensure timely delivery of high-quality products to customers.
Educational technology plays several roles in 21st century education by analyzing various aspects of teaching and learning. It aims to improve instruction by making it more student-centered and collaborative. Technology allows 24/7 access to information and easy sharing of digital content. Educational technology also helps to improve teaching and learning, develop effective curricula and teaching materials, provide proper training to teachers, and identify the needs of the community.
This document discusses goal programming, a technique used when the objectives of a linear program cannot be fully satisfied. It presents an example where the goals of producing at least 16 soldiers and 10 trains cannot be met simultaneously. Goal programming allows deviations from the goals by introducing slack and surplus variables. The problem is then formulated as a linear program that minimizes the costs or priorities associated with deviating from the goals. Other variations discussed are preemptive goal programming based on priority of goals and minimizing the maximum deviation. Goal programming has applications in determining optimal radiation delivery when treatment goals cannot all be fully achieved.
The document is a 3 page curriculum vitae for Julie Hartmann. It summarizes her extensive experience as a social worker working in clinical, government, justice, and education settings. It details her qualifications including a Bachelor of Social Work and various training programs. It also provides a professional summary of her roles at organizations like Open Minds, UnitingCare Community, Cairns Base Hospital, and government departments.
The document discusses the make or buy decision process where a firm decides whether to produce a product internally or purchase it externally. It considers factors like purchase price, transportation costs, inspection costs, production volume requirements, opportunity costs, sunk costs, and incremental costs. The decision is also influenced by government taxes, imports, exports, and production levels. Make or buy aims to choose the optimal strategy by analyzing costs and advantages of the two options such as controlling selling price, reducing variable and marginal costs, and flexibility in sales mixtures.
The firm is an economic institution that transforms factors of production into consumer goods – it:
Organizes factors of production.
Produces goods and services.
Sells produced goods and services.
The document discusses the theory of producer behavior and costs. It defines key concepts like production functions, returns to scale, and costs including fixed, variable, average, marginal, and total costs. It explains the relationships between these different cost concepts and how average and marginal costs change with output quantity. Cost curves like average total cost are also examined and shown to typically be U-shaped. Factors that influence costs like diminishing marginal returns are explained. Profit maximization when marginal revenue equals marginal cost is also covered.
- Costs can be classified as either variable or fixed based on how they react to changes in business activity
- Variable costs change in proportion to changes in activity, while fixed costs remain unchanged with activity levels
- Understanding cost behavior and classifications is important for cost-volume-profit (CVP) analysis, which analyzes the relationship between costs, sales volume, and profits
This revision webinar focuses on the short run costs of businesses. It includes with examples a distinction between fixed and variable costs, average, marginal and total costs and short and long run costs.
This document provides an overview of marginal costing and absorption costing.
1. Marginal costing treats variable costs as product costs and fixed costs as period costs, while absorption costing treats both variable and fixed production costs as product costs.
2. Profits reported under the two methods will differ if inventory levels change during the period, as absorption costing includes a portion of fixed costs in inventory valuation.
3. The difference in reported profits equals the change in inventory units multiplied by the fixed production cost per unit absorbed. In the long run, total reported profits will be the same under both methods.
- Traceable costs arise due to a specific segment and would disappear if that segment was eliminated. Common costs support multiple segments and would remain even if one segment was removed.
- Costs can be traced directly to segments but some costs that are traceable at higher levels of segmentation become common costs at lower levels.
- Improper cost assignment, such as omitting costs, assigning common costs to segments, or using inappropriate allocation methods, undermines the accuracy of segment reporting.
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To understand the basic concepts of marginal cost and marginal costing.
To understand the difference between the Absorption costing and Marginal Costing.
To learn the practical applications of Marginal costing.
To understand Breakeven charts & Limitation
This document discusses key concepts in production costs, including:
1. Cost minimization occurs when the slope of the isocost curve equals the slope of the isoquant curve.
2. Firms should substitute cheaper inputs for more expensive inputs when input prices rise to minimize costs.
3. Economies of scale exist when average costs decrease with increased output due to factors like specialization and bulk purchasing. Diseconomies of scale occur when management becomes complex and average costs increase with more output.
4. Cost functions show the relationship between total, fixed, variable, average, and marginal costs as a firm's output changes. Marginal cost is the change in total cost from one additional unit of output.
The document provides information on various costing methods including:
1) Marginal costing which involves charging variable costs to cost units and writing off fixed costs against aggregate contribution. Key marginal costing formulas are outlined.
2) Absorption costing which involves allocating both fixed and variable production costs to inventory and cost of goods sold. An example absorption cost statement is presented.
3) Job costing which tracks costs to individual jobs/orders. Objectives and a sample job cost sheet are described.
4) Batch costing which determines unit cost for batches of homogeneous products.
5) Service/operating costing which ascertains costs of services using appropriate cost units like passenger-
This document provides an overview of absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs, regarding fixed costs as period costs. Absorption costing results in higher inventory valuations and can result in different profit amounts than marginal costing depending on production and sales levels. The document also discusses breakeven analysis and how it can be used to determine sales volumes needed to reach the breakeven point or a target profit level.
This document discusses the different types of costs that firms face, including:
- Fixed costs that do not vary with output levels
- Variable costs that vary with output
- Short-run costs determined by production technology and returns to scale
- Long-run costs including the user cost of capital which is depreciation plus the interest rate times the value of capital
It provides examples of cost curves and how costs change with varying levels of output in the short-run and considerations for minimizing costs through optimal input choices in the long-run.
The document discusses cost-volume-profit (CVP) analysis, which is used to determine how changes in costs and volume affect a company's operating income and net income. It outlines the objectives and assumptions of CVP analysis, as well as its limitations. The document also describes various CVP techniques like contribution margin analysis, profit/volume ratio analysis, and breakeven analysis. It provides examples of how to use these techniques to determine the optimal production method, product mix, make-or-buy decisions, and sales volume required to achieve a target profit. Finally, it discusses components of breakeven analysis and how to calculate and present the breakeven point and margin of safety graphically.
This document discusses the different types of costs that firms face in production. It defines total, fixed, variable, average, and marginal costs. Total cost is the market value of all inputs used and includes both explicit costs that require money outlays and implicit opportunity costs. Fixed costs do not vary with output while variable costs do. The relationships between these costs are shown using tables of data and graphs of cost curves, including the typical U-shaped average total cost curve. Costs differ in the short-run versus long-run due to variable fixed costs.
This document compares and contrasts absorption costing and marginal costing. Absorption costing treats all manufacturing costs, including fixed costs, as product costs. Marginal costing treats only variable manufacturing costs as product costs and regards fixed costs as period costs. Under absorption costing, closing stock value and reported profits can be higher when production exceeds sales. Marginal costing is considered more relevant for decision making, while absorption costing complies with accounting principles. Both approaches have merits depending on the situation.
This document discusses concepts related to cost-volume-profit analysis and break-even analysis. It defines marginal costing, contribution margin, profit-volume ratio, break-even point, and margin of safety. It also includes examples showing how to calculate these metrics using cost and revenue data. The document is intended to help managers understand how costs, sales volume, and price affect profitability.
1) Firms aim to maximize profits by producing at the quantity where marginal cost equals marginal revenue.
2) A firm's costs include explicit costs like wages as well as implicit opportunity costs. Total costs are used to calculate economic profit.
3) As a firm's production increases, its marginal costs will rise due to diminishing returns. Average costs first fall then rise, creating a U-shaped average total cost curve.
The document discusses the costs of production for firms. It explains that a firm's total costs are divided into fixed and variable costs. Fixed costs do not vary with output, while variable costs do vary with output. The marginal cost is the change in total cost from producing an additional unit, and typically rises as output increases due to diminishing returns. Average costs first fall and then rise with output, resulting in a U-shaped average cost curve. In the long run, more costs become variable, changing the cost structures compared to the short run.
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3. What do we study in Marginal Costing?
Marginal Cost
Marginal Costing
Direct Costing
Absorption Costing
Contribution
Profit Volume Analysis
Limiting Factor/key factor
Break Even Analysis
Profit Volume Chart
4. What do we study in Marginal Costing?
and
Why do we Study MC?
Marginal Cost
Marginal Costing
Direct Costing
Absorption Costing
Contribution
Profit Volume Analysis
Limiting Factor/key factor
Break Even Analysis
Profit Volume Chart
Management
Decision
Making
5. Marginal Cost
“Marginal cost is amount at any given
volume of out put by which aggregate
costs are changed…..
if volume of output
is increased or decreased by one unit”
6. Marginal Cost
“Marginal cost is amount at any given
volume of out put by which aggregate
costs are changed if volume of output
is increased or decreased by one unit”
1 Manufacture 100 radio
Variable costs Rs150 p u
Fixed cost Rs 5000
2 If Manufacture 101 radios
inal Cost 100 x150= 15000
Cost = 5000
total 20000
Marginal cost 150 x101=15150
Fixed Cost = 5000
TOTAL 20150
1
2
additional Cost=Rs 150
7. Marginal Costing
“marginal costing is ascertainment ofmarginal costing is ascertainment of
marginal cost by differentiating betweenmarginal cost by differentiating between
fixedfixed andand variablevariable costscosts
and of theand of the effecteffect
ofof changes in volumechanges in volume or type of outputor type of output””
8. Marginal Costing
What Could be effects ofWhat Could be effects of
ChangesChanges
In volumeIn volume
oror
Type of outputType of output
9. Marginal Costing
What Could be effects ofWhat Could be effects of
ChangesChanges
In volumeIn volume
oror
Type of outputType of output
1 lakh units
To
2 lakh units
10. Marginal Costing
What Could be effects ofWhat Could be effects of
ChangesChanges
In volumeIn volume
oror
Type of outputType of output
From One
Model of
Car to
Another
From One
Size of
product to
another
11. Marginal Costing ---Characteristics
Fixed & Variable
Costs
MC Costs as
Products Costs
Fixed Costs as
Period Costs
Inventory
Valuation
Contribution
Pricing
Marginal Costing
&
Profit
14. Marginal Costing ---Characteristics
Fixed Costs as
Period Costs
Fixed costs treated
Period costs
Charged to costing
P & L Account
Fixed costs treated
Period costs
Charged to costing
P & L Account
19. Marginal Costing --- Marginal Costing Profit
Sales of A
Marginal cost
Of A
Contribution of
A
Total
Contribution of
A,B& C
Total Fixed
Cost
Sales of B
Marginal cost
Of B
Contribution of
B
Sales of C
Marginal cost
Of C
Contribution of
C
less
=
less less
= =
less
= Profit/loss
20. Absorption Costing
“Absorption cost is a total cost techniqueAbsorption cost is a total cost technique
Under which total cost i.e.Under which total cost i.e. fixed & variablefixed & variable
is charged to production.is charged to production.
Inventory is also valued at total cost.Inventory is also valued at total cost.
29. Contribution is the difference between
sales
And the marginal (Variable) cost
Contribution =sales-variable cost
C= S-V
Contribution = Fixed Cost+ Profit
C= F+P
Therefore
S-V = F+P
30. Contribution is the difference between
sales
And the marginal (Variable) cost
S-V=F+P
If any 3 factors in the equation are known
The 4th
could be found out
P=S-V-F
P=C-F
F=C-P
S=F+P+V
V=S-C……….
32. Sales =Rs 12,000
V Cost=RS 7,000
F Cost=Rs 4,000
F=C-P
=5,000-1,000
=Rs 4,000
F COST?
V=S-C
=12,000-5000
=Rs 7,000
V Cost?
33. Profit –Volume Ratio (PV Ratio)
(Expresses the relation of Contribution to sales)
P/V Ratio =Contribution = C/S =S-V/S
Sales
C = S XP/V Ratio
C
S = --------
P/V Ratio
Sales= Rs 10,000
V Cost=Rs 8,000
P/V Ratio=c/s
=S-V/S
=10,000-8000/10,000
=20%
34. Profit –Volume Ratio (PV Ratio)
When PV
Ratio is
Given
C= SXPV Ratio
C= 10000X20%
=Rs 20,000
35. Profit –Volume Ratio (PV Ratio)
Another Method
Change in Contribution
P/V Ratio = ---------------------------------
Change in Sales
Change in profit
= -----------------------
Change in Sales
1600-1000
=-------------------x 100
22000-20000
600
= -----------x100=30%
2,0000
Year sales net profit
2005 20,000 1000
2006 22,000 1600
36. What Could be the Uses of PV Ratio?
Break Even Point
Profit at Given Sales
Vol required to earn given Profit
37. How Improvement in PV Ratio Could be Achieved?
Increasing Selling Price
Reducing Variable Cost
Changing Sales Mix
45. What are BEP---assumptions
All costs are fixed or variable
VC remains Constant
Total FC remains Constant
Selling Price don’t change With Volume
Synchronisation of Prod & Sales
No Change in Productivity per workers
47. Cost- Volume- Profit
Analysis ALGEBRAIC
METHODFixed Cost
BEP (Units) = --------------- = F
Contribution PU S-V
Fixed Cost
BEP (Rs ) = ----------------- x Sales
Contribution
Fixed Cost
BEP (Rs) = ------------------
P/V Ratio
48. Cost- Volume- Profit
Analysis ALGEBRAIC
METHODFixed Cost
BEP (Units) = --------------- = F
Contribution PU S-V
Fixed Cost
BEP (Rs ) = ----------------- x Sales
Contribution
Fixed Cost
BEP (Rs) = ------------------
P/V Ratio
F Cost=Rs 12000
S Price=Rs12 pu
V Cost =Rs 9 pu
Find BEP
49. Cost- Volume- Profit
Analysis
Other Uses
Profit at diff. Sales Vol.
Sales at Desired Profit
F Cost=Rs 12000
S Price=Rs12 pu
V Cost =Rs 9 pu
Profit when sales are
a) Rs 60,000
b) Rs 1,00,000
50. Cost- Volume- Profit
Analysis
Profit at diff. Sales Vol.
C
P/V Ratio= ----- = 3/12=25%
S
WHEN SALES=Rs 60,000
contribution=salesxp/vratio
=60000x25%
=Rs 15000
Profit =contribution-fixed cost
=15000-12000
=Rs3000
F Cost=Rs 12000
S Price=Rs12 pu
V Cost =Rs 9 pu
Profit when sales are
a) Rs 60,000
b) Rs 1,00,000
51. Cost- Volume- Profit
Analysis
Other Uses
Sales at Desired Profit
F Cost +Desired Profit
Sales= -------------------------------
P/V Ratio
F Cost=Rs 12000
S Price=Rs12 pu
V Cost =Rs 9 pu
Sales if desired profit
a) Rs 6000
b) Rs 15,000
52. Cost- Volume- Profit
Analysis
Sales at Desired Profit
F Cost +Desired Profit
Sales= -------------------------------
P/V Ratio
12,000+6000
a)Sales= ---------------
25%
=Rs 72,000
F Cost=Rs 12000
S Price=Rs12 pu
V Cost =Rs 9 pu
Sales if desired profit
a) Rs 6000
b) Rs 15,000
53. CVP Analysis -question
P ltd has earned a profit of Rs 1.80 lakh on sales of
Rs 30 lakhs and V Cost of Rs 21 lakhs.
work out
a)BEP
b)BEP When V Cost decreases by5%
c)BEP at present level when selling price reduced by5%
55. CVP Analysis -question
b) When V Cost increases by 5%
New Variable Cost=2100000+5%
=22,05,000
PV Ratio 3000000-2205000
3000000
=26.5%
BEP =7,20,000/ 26.5%
=Rs 27,16,981
56. CVP Analysis -question
c)When Selling Price reduced by 5%
New SP=3000000—5%
=Rs 28,50,000
Contribution=28,50,000-21,00,000
=Rs7,50,000
PV Ratio =7500000/2850000
=26.32%
FC+PROFIT
Desired Sales= ------------------ =
720000+1800000
PV Ratio 26.32%
=Rs 34,19,453( appx)
59. Break-Even Analysis
Costs/Revenu
e
Output/Sales
Initially a firm
will incur fixed
costs, these do
not depend on
output or sales.
FC
As output is
generated, the
firm will incur
variable costs –
these vary directly
with the amount
produced
VC
The total costs
therefore
(assuming
accurate
forecasts!) is the
sum of FC+VC
TC
Total revenue is
determined by the
price charged and
the quantity sold –
again this will be
determined by
expected forecast
sales initially.
TR
The lower the
price, the less
steep the total
revenue curve.
TR
Q1
The Break-even point
occurs where total
revenue equals total
costs – the firm, in
this example would
have to sell Q1 to
generate sufficient
revenue to cover its
costs.
63. Break-Even Analysis
Costs/Revenue
Output/Sales
FC
VC
TCTR
Q1 Q2
Assume
current sales
at Q2
Margin of Safety
Margin of
safety shows
how far sales can
fall before losses
made. If Q1 =
1000 and Q2 =
1800, sales could
fall by 800 units
before a loss
would be made
TR
Q3
A higher
price would
lower the
break even
point and the
margin of
safety would
widen
65. Break-Even
Analysis
• Remember:
• A higher price or lower price
does not mean that break even
will never be reached!
• The BE point depends on the
sales needed to generate
revenue to cover costs
66. Break-Even Analysis
• Importance of Price Elasticity of
Demand:
• Higher prices might mean fewer
sales to break-even
• Lower prices might encourage
more customers but higher volume
needed before sufficient revenue
generated to break-even
67. Break-Even
Analysis
• Links of BE to pricing strategies
and elasticity
• Penetration pricing – ‘high’ volume,
‘low’ price – more sales to break
even
68. Break-Even
Analysis
• Links of BE to pricing strategies
and elasticity
• Market Skimming – ‘high’ price ‘low’
volumes – fewer sales to break even
69. Break-Even
Analysis
• Links of BE to pricing strategies
and elasticity
• Elasticity – what is likely to happen
to sales when prices are increased
or decreased?
71. Construction Of PV Chart
1 select a scale on Horizontal axis---sales
2 Select a scale on Vertical axis- FC & Profit
3 Plot FC & Profit
4 Diagonal line crosses sales line at BEP
73. Construction Of PV Chart
0 5000 10000 15000 20000
Sales Rs
Fixed Cost
Rs
2000
4000
5000
6000
8000
8000
6000
5000
4000
2000
Profit
Rs
BEP
74. Construction Of PV Chart
0 5000 10000 15000 20000
Sales Rs
Fixed Cost
Rs
2000
4000
5000
6000
8000
8000
6000
5000
4000
2000
Profit
Rs
BEP
Loss
Area
Profit
Area
--------------------------
Margin of Safety
75. Effect Of Change in Profit- 20% decrease in fixed Cost
New F Cost= 5000- 20%=Rs4000
Fixed Cost
New BEP = PV Ratio
= 4000/50%
=Rs 8000
New Profit=S-F-V
=20000-4000-10000
=Rs 6000
76. Effect of Change in profit- 20% decrease in FC
0 5000 10000 15000 20000
Sales Rs
Fixed Cost
Rs
2000
4000
5000
6000
8000
Profit
Rs
BEP
Loss
Area
Profit
Area
8000
6000
5000
4000
2000
77. Effect Of Change in Profit- 10% decrease in V Cost
New V Cost= 10000- 10%=Rs9000
New PV Ratio=20000-9000
20000
Fixed Cost
New BEP = PV Ratio
= 5000/55%
=Rs 9090 Appx
New Profit=S-F-V
=20000-5000-9000
=Rs 6000
=55%
78. Construction Of PV Chart
0 5000 10000 15000 20000
Sales Rs
Fixed Cost
Rs
2000
4000
5000
6000
8000
8000
6000
5000
4000
2000
Profit
Rs
New BEP
Loss
Area
Profit
Area
79.
80. Effect Of 5% Decrease in Selling Price
0 5000 10000 15000 20000
Sales Rs
Fixed Cost
Rs
2000
4000
5000
6000
8000
8000
6000
5000
4000
2000
Profit
Rs
New BEP
Loss
Area
Profit
Area
81. ATTENTION COMMERCE
STUDENTS
ACCOUNTING(FINANACIAL & COST) OF
ICMAP STAGE 1,2,3,4 (NEW CLASSES)
CA..MODULE B,C,D
PIPFA (FOUNDATION,INTERMEDIATE,FINAL)
ACCA-F1,F2,F3
BBA,MBA
B.COM(FRESH),M.COM
MA-ECONOMICS..O/A LEVELS
KHALID AZIZ…..0322-3385752
cost-accountants@yahoogroups.com