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Travellers Cheque: 8 Key Features with Pros and Cons

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Traveller’s cheque is a service meant for tourism traffic, which minimizes the risk of carrying heavy cash while travelling. A person who intends to visit several places can purchase traveller’s cheques issued by the banker. The traveller is required to deposit a certain sum of money with a banker and ask for the issue of traveller’s cheques.

what is travellers cheque and its features
what are traveller’s cheque and its features

This is printed in different denominations. At the time of purchasing the traveller’s cheques, the purchaser is required to put this signature on all the traveller’s cheques issued to him in the presence of a responsible official of the issuing bank.

Features of Traveller’s Cheque

The following are their essential features:

1. Anyone Can Purchase

Traveller’s cheques can be purchased by anyone.

For this need not be a customer of the bank.

2. No Limit On Cheques

A person may buy any number of traveller cheques.

The purchaser has to deposit money with the issuing bank equivalent to the number of the traveller’s cheques the person intends to buy.

21 Advantages and Disadvantages of Commercial Banks.

3. Securely Signed Cheques

Each traveller’s cheque should be signed by the purchaser place marked “when countersigned below with this signature”, before the official who issues the cheque.

4. Cheques Accepted with Local Language Sign

Normally, the cheque should be signed by the purchaser in English script.

In case the purchaser signs in any script, it may be accepted provided it is the script of the area where the purchaser would encash the traveller’s cheques.

5. Issued with Single Name Only

The traveller’s cheques are issued in a single name like not in joint names or names or clubs, societies, and companies, etc.

6. Encashable at Selected Branches

The traveller’s cheques are generally encashable only at the branches of the issuing bank or the branches of the other banks with which the issuing bank may have an arrangement.

The issuing bank may also enter into arrangements with establishments other than banks who may accept traveller’s cheques from their customers, in the discharge of the latter’s obligations.

For example. a large number of hotels, restaurants, shops, etc. accept State Bank of India’s traveller’s cheques from their customers.

They display the following signboard for this purpose “we accept state bank’s traveller’s cheques”.

7. Re-Signed on Encash Action

The purchaser of the traveller’s cheques has to sign the traveller’s cheques again at the time of encashing the traveller’s cheques at the place marked “countersign here in presence of the person cashing”.

The place and date of engaging will also be put at the appropriate place.

In case the purchase has already signed the cheque, the banker should ask him to sign afresh on the reverse of the cheque.

The payment would be made to the purchase only when his counter signatures tally with the specimen signature that the person put at the time of purchasing the cheque.

Different Services Rendered by Merchant Bankers.

8. Unlimited Validity

There is no expiry period for traveller’s cheques.

Unused cheques can be returned back to the issuing bank and the payment can be obtained for them.

Advantages of Traveller’s Cheques

The main advantages of traveller’s cheque are as follows:

1. Highly Secure

If a person loses or misplaces these cheques, they can not be encashed.

advantages and disadvantages of travellers cheque
advantages and disadvantages of traveller’s cheque

Only that has the authority to cash them.

Moreover, he can also claim a refund for the cheque it is is lost or stolen.

2. Fast Replacement

In case these cheques are lost or stolen, their holder can get an immediate replacement.

Most of the times, they can get a replacement within 24 hours.

Commercial Bill: Features, Advantages and Disadvantages.

3. Easier to Track Spending

As people know where and how much they are spending, they can easily keep a record of their expenses.

Disadvantages of Travellers Cheques

The main disadvantages of traveller’s cheques are as follows:

1. Purchase Fees

People have to pay fees to the bank in order to buy traveller’s cheques.

These fees can vary from bank to bank.

2. Exchange Rate Fluctuations

There can be a great difference in the exchange rate between the local currency and the foreign currency when the holder of traveller’s cheques actually buy the cheques and spend it for purchases.

At times, the places that accept these cheques can give them abysmally low exchange rates.

As a result, they may end up losing money.

3. Difficult to Convert

Sometimes, people may have to travel to faraway places in order to get cash in lieu of the cheques.

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8 Different Types of Branch Accounting (Explained)

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Businesses often operate in multiple locations or branches, each functioning as a distinct unit with its own financial transactions and operations. This complexity gives rise to the necessity of effective branch accounting, a system that ensures accurate record-keeping, financial transparency, and efficient decision-making.

types of branch accounting
types of branch accounting

Branch Accounts have for their purpose the recording of the transaction of branches, Whether they relate to dealing with the head office, with outsiders, or to dealing with different branches of the same concern. Thus, As a general statement, it may be the side where a section of a business is segregated physically from the main section it is a branch.

Branch accounting refers to the practice of maintaining separate accounting records for individual branches of an organization while consolidating their financial data into the parent company’s accounts.

In other words, if the location of activities is separated from the main place of operation, that may be said to be ahead office and a branch.

Different Types of Branch Accounting

Branches can be classified into two types:

1. Dependent Branches:

The term dependent branch means a branch that does not maintain its own set of books. All records have to be maintained by the head office in case of a dependent branch.

Thus, The head office may keep accounts of the branch according to any of the following methods:

  1. Debtors System.
  2. Stock and Debtors system.
  3. Final Accounting System.
  4. Wholesale Branch system.

2. Independent Branch:

An independent branch means a branch, which maintains its own set of books.

Such a branch can either be a home branch or a foreign branch.

The method of according is the same in both cases except that in the case of a foreign branch, The trial balance sent by the foreign branch is to be converted into the currency of the country of the Head Office.

(A). Home Branch

Such a branch keeps a complete set of its books. It may also purchase goods from outside parties besides receiving goods from the head office.

It prepares its own trial balance and final accounts and sends its copies to the head office for their incorporation in the head office books.

Thus, It maintains a head office account in its books this is of the nature of a personal account.

(B). Foreign Branch

In the case of a foreign branch, the accounting procedure is the same as in the case of a Home Branch.

On receipt of the trial balance from the foreign branch, the head office will scrutinize it and pass necessary entries for goods in transit, cash in transit, and other adjustments as may be necessary.

The trial balance of the foreign branch will have to be converted into home currency in the following manner.

3. Centralized Branch Accounting:

Centralized branch accounting is a common approach where all accounting activities, including record-keeping and financial reporting, are managed by the parent company at a central location.

Each branch conducts its operations independently but sends its financial data to the central office for consolidation. This method offers several benefits, such as consistent reporting standards, centralized control, and reduced duplication of tasks.

Advantages:

  • Uniformity: Centralized branch accounting ensures uniformity in financial reporting across all branches, as they follow a standardized set of procedures and reporting formats.
  • Control: The central office maintains greater control over financial activities, enabling quicker decision-making, resource allocation, and risk management.
  • Cost-Efficiency: Resources can be allocated more efficiently, as tasks like hiring specialized accountants can be centralized, reducing costs for individual branches.

Challenges:

  • Communication Delays: The need to transmit financial data to the central office can result in communication delays, potentially hindering real-time decision-making.
  • Lack of Local Autonomy: Branch managers might feel disempowered due to limited autonomy in financial matters, which could impact their motivation and accountability.

4. Decentralized Branch Accounting:

In contrast to centralized accounting, decentralized branch accounting assigns a considerable degree of financial autonomy to individual branches.

Each branch maintains its own accounting records, prepares financial statements, and handles its finances independently. However, these branch-level records are later consolidated at the central office for a holistic view of the organization’s financial health.

Advantages:

  • Local Autonomy: Branch managers have greater control over financial decisions, allowing them to tailor strategies to their specific market conditions and needs.
  • Quick Decision-Making: Decentralized branches can respond rapidly to changing market conditions, adapting their financial strategies without waiting for central approval.
  • Motivation: Branch managers are more accountable for their financial performance, as their decisions have a direct impact on their branch’s results.

Challenges:

  • Inconsistency in Reporting: Because each branch follows its own accounting practices, there might be inconsistencies in financial reporting, making consolidation and comparison challenging.
  • Risk of Inefficiencies: Duplication of tasks, such as hiring separate accounting personnel for each branch, can result in inefficiencies and increased costs.
  • Standardization Issues: Ensuring compliance with standardized accounting principles and procedures might be challenging across multiple branches.

5. Foreign Branch Accounting:

When a company operates branches in different countries, foreign branch accounting comes into play. This type of branch accounting involves dealing with currency exchange rates, international taxation, and compliance with diverse accounting standards.

Advantages:

  • Global Reach: Foreign branches provide access to international markets and customer bases, potentially leading to increased revenue streams.
  • Diversification: Operating in multiple countries can help mitigate risks associated with economic downturns in a single market.

Challenges:

  • Currency Fluctuations: Exchange rate fluctuations can impact the translation of financial data from foreign branches into the parent company’s reporting currency, affecting reported results.
  • Regulatory Complexities: Different countries have varied accounting and taxation regulations, requiring a deep understanding of local compliance requirements.
  • Cultural and Language Barriers: Communication and understanding issues can arise due to cultural and language differences, affecting efficient financial management.

6. Departmental Branch Accounting:

Departmental branch accounting involves treating each department within a branch as a separate accounting unit. This method provides insights into the financial performance of individual departments, enabling better resource allocation and performance assessment.

Advantages:

  • Granular Insights: By tracking department-specific financial data, management can identify areas of strength and weakness within the organization.
  • Resource Allocation: Efficient allocation of resources becomes possible as management can direct funds to departments with the highest potential for growth.

Challenges:

  • Complexity: Maintaining separate accounting records for each department within a branch can be complex and time-consuming.
  • Interdepartmental Transactions: Balancing transactions between departments might lead to complications and discrepancies in financial reporting.

7. Retail Branch Accounting:

Retail branch accounting is primarily relevant for businesses operating in the retail sector with multiple store locations. This type of branch accounting focuses on managing sales, inventory, and cash transactions specific to each store.

Advantages:

  • Inventory Management: Retail branch accounting helps optimize inventory levels by tracking sales and demand patterns for different store locations.
  • Profit Analysis: By assessing the profitability of individual stores, management can make informed decisions about expansion, closure, or remodeling.

Challenges:

  • Data Volume: With numerous transactions occurring daily, managing and reconciling sales, inventory, and cash data from various branches can be overwhelming.
  • Employee Training: Ensuring that employees at each store follow consistent accounting practices can be challenging.

8. Online Branch Accounting:

In the digital age, online businesses often have virtual branches in the form of e-commerce websites or online platforms. Online branch accounting involves managing transactions and financial data associated with these digital storefronts.

Advantages:

  • Global Reach: Online branches can cater to a worldwide customer base, providing an opportunity for rapid expansion.
  • Real-Time Tracking: Online transactions can be tracked in real-time, allowing for immediate insights into sales and financial performance.

Challenges:

  • Cybersecurity: Online branches are vulnerable to cybersecurity threats, making it essential to invest in robust security measures to protect financial data.
  • Technology Upkeep: Managing and updating online platforms requires consistent technological investments and expertise.

In Case of Widely Fluctuating or Fairly Constant Rate of Exchange

In case the exchange rate between the two countries is fairly constant, a fixed rate may be adopted for the convention of branch balance in the home currency.

In such a case, all balance appearing in the Trial balance is converted at a fixed rate with the following exceptions:

  • Remittances from the head office to the branch will be converted at the rate at which there were effected from the head office and remittances from the Branch to the Head office will be converted at the rate at which they have been actually received.
  • The balance in the Head Office Account in the branch book will be converted into the home currency in an amount equal to the amount appearing in the branch account in the head office books.
  • Goods from the Head Office to the Branch will be converted at the value usually available in the home currency in the head office books.

Moderately Fluctuating Rate of Exchange

In case there are moderate fluctuations in the rate of exchange, the following rules may be followed for the conversion of the branch account’s Trial balance into the Home currency.

1. Fixed Assets

The fixed assets may be converted at the rate ruling on any of the following dates:

  1. At the date of the contract.
  2. The date of delivery.
  3. At the date of payment.
  4. At the date of remittance of remittances for the purpose.

2. Fixed Liabilities

There may be converted at the prevailing on any of the following dates

  1. At the date of the contract.
  2. When liability arose.

3. Transfer of Goods

Any of the following dates may be adopted:

  1. At the date of receipt.
  2. The date of dispatch.
  3. At the date, the customer would be debited.

4. Current Assets and Liabilities

They are converted at the rate ruling on the date of the end of the accounting period.

5. Remittances

Remittances from the Head Office to the branch or from the Branch to the Head Office should be converted at the rates at the time when the remittances were sent to the branch or received by the Head Office as the case may be.

6. Revenue Items

These will be converted at the average rate ruling over the whole period except for the following:

  1. Depreciation: It should be converted at the rate at which the fixed assets to which it relates have been converted.
  2. Provision for bad Debts: They should be converted at the rates applicable to debtors.
  3. Opening and Closing Stock: Opening stock should be converted at the prevailing at the beginning of the accounting year.

The closing stock should be converted at the prevailing at the end of the accounting year.

However, the head office men decided to adopt a fixed rate for the conversion of goods from the Head office or from the branch to the head office. In such cases, they should be converted at a fixed rate.

7. Head Office Account

This can be taken as equivalent to the amount appearing in the Branch Accounts in the head office books.

Method of Currency Conversion

The Branch Accounts Trial can be converted into the Head office of currency according to any of Two Methods:

1. Detailed Conversion

In the case of this method, each item of the Branch Accounts Trial Balance has been converted into the Head Office Currency according to the rates applicable to different items.

2. Abridged Conversion

In the case of this method, the profit, and loss account of the branch is prepared in the Branch Currency.

Thus, the amount of Net profit or Net loss as shown by the profit and loss account is converted into the Head Office Currency at the average rate of exchange.

Departmental Stores Accounts: Methods, Importance (Explained)

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Departmental Stores serve not only as a big market but also as a faithful friend. Departmental stores offer valuable services to customers. Almost all the goods of daily use are provided to them under one roof.

what is the department stores account
what is the department stores account

One of the most important aims of accounting is the segregation and recording of activities, whether of buying or selling of production, administration, or distribution.

In order to ascertain the profit or loss made by each department, it will be advisable to prepare separate trading and profit & loss accounts for each department at the end of the accounting year.

Importance of Departmental Stores Accounts

Preparation of such Departmental Stores Accounts is helpful to the business in the following respect:

  1. It enables the business to compare the performance of one department with that of another.
  2. It helps in appropriately rewarding or penalizing the departmental employees on the basis of the result shown to them.
  3. It helps the business in formulating proper policies relating to the expansion of the business. New profitable lines of production or trading that are giving a loss can be closed down.
  4. It’s a very important part of finance management in the supermarket business.

The preparation of departmental trading and profits & loss account requires the maintenance of proper subsidiary books having appropriate columns for the different departments.

For example: If a business had three departments P, Q, and R, the subsidiary books such as purchases books, purchases return books, Sales book, Sales return book, etc. Should have separate columns for each of the departments.

Cashbooks may also have columns for recording cash sales of each of the departments separately in case the volume of cash sales is quite large. 

In order to ascertain the profit or loss made by each department, it is necessary that each department is charged with a proper share of the various business expenses.

Method of Allocating Departmental Expenses

  1. Expenses incurred specifically for the department will be charged directly thereto eg: Repairs to Motors in the Transport Department.
  2. Expenses for the benefit of all the departments and capable of precise allocation will be debited accordingly e,g: Lighting, according to separate meterage.
  3. Expenses for the benefit of all departments not capable of precise allocation will be treated as follows:

Selling Expenses

These will be charged on a sales basis, either (A) value (B) units or quantities sold, e.g. Discounts allowed, Bad debts, Selling commission, Although occasionally some of these expenses may come under one of the other headings as in the case of bad debts, Where separate sales ledgers are used for each department.

Administration Charges

Many charges, like Rent and Rates, may be apportioned to give approximately true results on the basis of (A) area, (B) windows used, (C) cubic content, and (D) average stock held or sold.

Where expenses are incurred for which no basis of apportionment is practicable it is usual to bring down the departmental balance of profits and apportion these expenses equally.

Top 18 Questions Answers on Budgetary Control

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Budgetary Control Question Answer
Budgetary Control Question Answer

Budgetary Control – Explained

Following is the Q&A on budgetary control:

1. What do you understand by budget?

Budgetary control is a control procedure adopted for attaining targets determined in the budget.

A budget is a financial and/ or quantitative statement prepared prior to a defined period of time for the policy to be pursued during that period for attaining the object.

2. Explain the meaning of budgeting?

It is the preparation of comprehensive operating and financial plans for specific intervals of time or to say the whole process of preparing a budget is budgeting.

3. What is a zero base Budgeting Technique?

Zero-based budgeting as-as a method of budgeting when all activities are evaluated each time a budget is set discrete levels of activity are valued and a combination is chosen to match the funds available.

4. What is meant by forecasting?

Evaluation of probable future events is termed forecasting which may be of financial and non-financial nature.

5. Give the name of activity/ function budgets?

The sales budget, production budget, material budget, purchase budget, labor budget, production overhead budget, plant utilization budget, and selling and distribution overhead budget are known as activity budget.

6. State any two objects of budgetary control?

It is a tool in the hand of management that helps in planning and control.

7. What is the function of the budget committee?

The budget committee enables the head of the department in forecasting and includes these in preparation for the master budget, analyzing variances, and undertaking remedial action.

8. Which budget is prepared first production budget or the sales budget?

If production is a key factor then at first production budget is prepared but if sales are the key factor then the sales budget is prepared first.

9. What is a principal budget factor the extent of those in budgetary control?

It is that factor the extent of whose influence should be assessed first to ensure the implementation of the functional budget in business sales, labor, materials, etc. These are the key factors.

10. What is Budget Manual?

The budget manual describes the responsibility of officers entrusted with budgetary control and the use of relevant forms and records for the purpose.

11. What is the Master Budget?

A master budget is termed a summary budget to incorporate all functional budgets and is prepared by a budget officer.

12. What is a Flexible budget?

It is a budget that recognizes the difference between fixed, semi-fixed and variable costs designed to change in relation to the level of activity attained.

13. What is the basic difference between the production budget and the production cost budget?

Production budget means a budget of production cost budget is as a budget which shows the cost of production of a budgeted quantity.

14. What is meant by a Fixed budget?

A fixed budget means a budget that is designed to remain unchanged irrespective of the level of activity attained.

15. What are the salient characteristics of budgetary control?

  1. Planning: targets are fixed in quantitative or monetary terms responsibility of the officer is determined to enable appraisal.
  2. Coordination: the master budget is prepared to ensure coordination.
  3. Recording and reporting: actual performance is reported to the officer it is compared with standards and variances are analyzed to fix responsibility.
  4. Corrective action: remedial action is being taken to overcome adverse variances Standards are revised if uncontrollable factors exist.
  5. Follow-up: it is observed whether measures adopted to overcome adverse variances are effective or not.

16. Explain the essence of an effective budgeting system?

  1. It should be fully supported by top management.
  2. All officials concerned with the budget should be aware of its object elements and techniques etc.
  3. The proper information system should prevail.
  4. Policies targets and budget periods should be clearly declined.
  5. Proper coordination and co-operation should lie in different departments.
  6. The program implementation officers should be entrusted with its preparation to get better results.

17. What are the differences in budget, budgeting, and budgetary control?

A budget is a financial and quantitative statement prepared prior to a defined period of time of the policy to be pursued during that period for attaining objectives while budgetary control is a control process adopted for attaining targets detailed in the budget.

Budgeting is a process of preparing a budget so all three terms are different.

18. What is the main limitation of budgetary control?

  • Its accuracy is affected by changes in circumstances.
  • Due consideration is not given to indirect and concealed facts affecting activity.
  • It evolves dictatorial tendencies and internal conflicts.
  • A budget is only a tool manager it cannot become a substitute for the manager.
  • It may increase paperwork if not properly implemented.
  • Managers & employees may blame others.
  • each of their efficiency will be evaluated.

Top 20 Questions and Answers on Standard Costing

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Standard costing is a method of ascertaining the costs prepared to exhibit standard cost and actual costs, and the difference between these costs is termed a variance.

standard costing questions and answers
standard costing questions and answers

Standard Costing Questions and Answers

Following are the top standard costing question answers:

1. What do you mean by standard cost?

Standard cost is a predetermined cost that determines what each production or service should cost under a given circumstance.

2. Give the limitation of Standard Costing?

The setting of the standard and standard cost for a different element of cost is tedious work, changes in factors necessitate the correction of standards which is expensive.

  • Sometimes, production standard is fixed too high in case the target is not achieved it creating frustration among staff.
  • It is not appropriate for a small organization because it is an expensive system.
  • It is necessary to implement the budgetary control system simultaneously.

3. What do you mean by standard rate?

Wages paid to each type of worker engaged in industry/ upon job is the standard rate and may be paid according to time or piece rate.

4. Enumerate the different types of standards?

The type of standards is the current standard, an ideal standard, an expected standard, a basic standard, a normal standard, and a historical standard.

5. What is the normal standard?

These are average standards expected to be attained in a long period and do not require adjustment from time to time.

6. What is meant by the ideal standard?

The standard which can be attained under the most favorable condition possible is known as the ideal standard.

7. What do you mean by expected standard?

The Expected standard is a realistic one and should be attained under all circumstances and future adjustment has been taken into consideration.

8. State two common objects of budgetary control and standard cost accounting?

The common object of budgetary control and standard cost accounting are:

  • Maximum utilization of the resource
  • Obtaining maximum efficiency or
  • Control over cost.

9. What is variance analysis?

The difference between actual cost and standard cost is termed as variance the examination of variances in detail and evaluation of them is known as variance analysis.

10. How will you classify variance?

  1. A variance may be classified as under:
  2. Favorable or adverse variances.
  3. Absolute or relative variance and
  4. Controllable or uncontrollable variances.

11. State the types of variances?

Types of variances are material variances, labor variance overhead variances, and sales variances.

12. What is the meaning of favorable variances?

Favorable variances are that variances which affect profit in a favorable manner which may be due to a reduction in cost or an increase In sales while adverse variance is that variances that effects profits adversely.

13. Explain controllable and uncontrollable variances?

When variance can be controlled by a person in a specified period is controllable variance if the variances cannot be controlled by the organization then it is called uncontrollable variances.

14. What may be the reason for material usage variances?

It may be due to using of substandard quality material, labor inefficiency, theft of material by workers, etc.

15. Explain material yield variance?

It is that portion of direct material usage variances which is due to the difference between the standard yield specified and the actual yield obtained.

16. What are the reasons for labor Efficiency variance?

  • lack of inspection use of the new plant.
  • good working conditions.
  • improvement in production techniques etc.

17. Why is idle time variance always adverse?

Because for idle time wages are paid but labor remains idle due to abnormal reasons consequently there is no production.

18. What are the characteristics of Standard Costing?

  1. On the basis of past experience and forthcoming conditions, the standard cost is determined by the product or service.
  2. The actual cost in respect of material labor and overhead is ascertained.
  3. The actual cost is compared with the standard cost and variances are computed.
  4. Analysis of variances is made for fixing responsibility.
  5. Remedial action is taken to remove anomalies or standards are revised.

19. Explain the advantages of Standard Costing?

  1. The actual cost is compared with the standard cost leading to cost control.
  2. Responsibility is fixed in case of the excess over standard cost this is helpful in controlling expenses.
  3. It is helpful in quality control.
  4. Improvement in efficiency check over extravagance etc leads to cost reduction and increase in profits.
  5. The tender price can be determined on the basis of the standard cost.
  6. The manager can execute policies expeditiously and smoothly.

20. What are the steps to be taken for the establishment of a Standard Costing System?

The following steps should be taken for the implementation of a standard costing system:

  1. Setting up of a cost center.
  2. Classification of expenses.
  3. Determination of the type of standard.
  4. Setting up of standard and.
  5. Preparation of standard cost card.

Explained – Marginal Costing and Cost Volume Profit Analysis

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marginal costing and cost volume profit analysis
marginal costing and cost volume profit analysis

Marginal Costing and Cost Volume Profit Analysis: Q&A

Marginal costing is the ascertainment of marginal cost and its effect on profit of changes in volume or type of output by differentiating between fixed cost and variable cost.

1. What do you understand by marginal cost?

It is the amount by which aggregate cost is changed if the volume of output is increased or decreased by one unit at any given volume of output.

2. What do you mean by break-even point?

The break-even point is that point of sales where there is no profit and loss at this point contribution is just equal to fixed costs.

3. Explain the meaning of contribution?

When variable cost is deducted from sales the residual is termed as the contribution.

4. State factors affecting the break-even point?

The following factors will affect the break-even point:

  • Increase in fixed cost.
  • The decrease in fixed cost.
  • Increase in variable cost.
  • The decrease in variable cost.

5. Give any two applications of contribution?

  1. Helpful in taking the decision to accept or reject the new order.
  2. Determination of selling price in certain circumstances etc.

6. What is the meaning of margin of safety?

The margin of safety is the excess of actual sales over the break-even sales volume.

7. What do you understand about keeping a factory?

It is an internal or external factor that restricts production sales or profit of the concern it is also known as a limiting factor or principle budget factor.

What is the meaning of the angle of incidence in a break-even chart when the total sales line and the total cost line are drawn on the same graph paper an angle is framed at its point of intersection which is known as the angle of incidence?

8. What do you understand by cost volume profit analysis?

An increase or decrease in cost corresponding to an increase or decrease in production is analyzed expenses are classified as fixed and variable on the basis of variable expenses increase or decrease in production conventional method of cost volume profit and its changes this technique is helpful in the interpretation of cost elements and managerial decisions.

9. What is the assumption of break-even analysis?

The assumption of break-even analysis is:

  • The total cost can be divided into fixed and variable costs.
  • The selling price per unit is more than the variable cost per united cost remains constant up to an extent of production while the variable cost remains constant per unit of production.
  • There are no changes in sales mix operating efficiency or utilization of plant and labor etc.

10. What is the Break-Even Chart?

The presentation of break-even analysis in the form of a chart or graph is termed a break-even chart.

The manager can appraise the business situation at a glance and it is easy to understand for the person not possess accounting knowledge.

Marginal cost at the different production levels, fixed cost. The volume of sales and profit or loss can be understood with this chart.

It helps in analyzing the effect of the change in one factor over other factors and re vales margin of safety.

11. What is the importance of the Margin of Safety?

It indicates the profitability and safety of any business. A comparative study is feasible between two or more business enterprises with the help of computing safety and a margin of safety.

The Margin of safety may increase on account of the following changes:

  • Increase in selling price.
  • the decrease in variable cost.
  • the decrease in fixed costs and.
  • shut down for non-profitable production and start profitable production.