The Reserve Bank of India (RBI) has issued revised guidelines on Priority Sector Lending (PSL) following a comprehensive review of existing provisions and stakeholder feedback. These updated norms introduce several significant changes, including an increase in loan limits for housing and renewable energy projects, as well as modifications to the classification criteria for priority sector…
The primary distinction between marginal costing and absorption costing lies in their treatment of fixed production costs. Marginal costing considers fixed production costs as period costs, expensing them in the period incurred. In contrast, absorption costing treats fixed production costs as product costs, allocating them to the units produced. Additionally, absorption costing emphasizes overhead recovery,…
Absorption costing, also known as full costing, is an accounting method used for inventory valuation. It incorporates all manufacturing costs, including direct materials, direct labor, and both variable and fixed manufacturing overhead, into the cost of a product. This approach is crucial for inventory valuation and profit reporting. Key Features of Absorption Costing Comprehensive Cost…
The Government of India has revised the classification criteria for Micro, Small, and Medium Enterprises (MSMEs), effective from April 1, 2025. This update was announced by Finance Minister Nirmala Sitharaman during the Union Budget 2025–26 presentation. The revision aims to facilitate business expansion, encourage the adoption of advanced technologies, and enhance access to financial resources…
Definition of Cost-Volume-Profit (CVP) Analysis Cost-Volume-Profit (CVP) analysis is a fundamental cost accounting technique used to assess the relationship between cost, volume, and profit. It enables businesses to determine how changes in variable and fixed costs impact overall profitability. Organizations utilize CVP analysis to calculate the number of units required to achieve a break-even point…
The break-even point (BEP) is the level of sales at which total revenue equals total costs, resulting in neither profit nor loss. It represents the sales threshold where a company covers all its expenses but does not generate profit. Any sales beyond the break-even point contribute to profit, while sales below this point result in…
Introduction Standard costing is a cost accounting technique that involves estimating expected production costs, including materials, labor, and overhead, and comparing them with actual costs to identify variances and enhance efficiency. According to the Chartered Institute of Management Accountants (CIMA), U.K., standard cost is defined as: “The planned unit cost of the product, component, or…
A variance report is a formal document that compares planned financial outcomes with actual financial results. Variance reporting to management involves analyzing deviations from budgeted figures, highlighting discrepancies, and providing insights to facilitate informed decision-making and enhance organizational performance. Types of Variances Variance reports are typically structured documents or presentations that compare actual financial performance…
Definition of BenchmarkingBenchmarking is the systematic process of measuring an organization’s products, services, and processes against those of industry leaders or best-performing entities. This practice enables organizations to establish performance standards by assessing their operations relative to industry benchmarks or internal objectives. Benchmarking facilitates the identification of improvement areas and fosters a culture of continuous…
Variance analysis is a financial assessment tool used to evaluate the differences between planned and actual figures. It compares actual costs against projected costs for materials, labor, and overheads, identifying areas of overperformance or underperformance. This analysis facilitates better cost control and financial management. The accounting treatment of variances involves adjusting the cost of goods…