MARGINAL COSTING - APPLICATION OF EQUIVALENT PRODUCTION IN DECISION MAKINGI
IN THIS VIDEO I HAVE DISCUSSED WITH A NUMERICAL PROBLEM, HOW EQUIVALENT PRODUCTION IS USED IN CALCULATING VARIABLE COST PER UNIT. WHEN VARIABLE COSTS OF DIFFERENT PRODUCTS ARE NOT DIRECTLY GIVEN IN THE PROBLEM, INSTEAD COST RATIOS ARE GIVEN THEN WE MUST CONVERT THE PRODUCTION OF ALL THE PRODUCTS AS EQUIVALENT TO ONE PRODUCT. THIS WILL GIVE THE VARIABLE COST PER UNIT IN TERMS OF THAT SELECTED PRODUCT. THIS VCs THEN SHOULD BE MULTIPLIED BY THE RATIOS TO FIND OUT VARIABLE COST PER UNIT OF EACH PRODUCTS. AFTER DOING THIS THE TOTAL FIXED COST IS CALCULATED ON THE BASIS OF STANDARD PRODUCTION. FINALLY THE MARGINAL COSTING FORMULAE ARE USED TO FIND OUT THE PROFITABILITY OF DIFFERENT PRODUCT MIZES AS REQUIRED IN THE PROBLEM.