Question

Discuss the most important accounting terms related to: 1. Differential analysis , OR 2. Segmented Financial Reporting, OR 3- Key assumptions of Cost-Volume-Profit Analysis . *

Answer 1

1. Differential Analysis:-

Differential analysis involves analyzing the different costs and benefits that would arise from alternative solutions to a particular problem. Relevant revenues or costs in a given situation are future revenues or costs that differ depending on the alternative course of action selected. Differential revenue is the difference in revenues between two alternatives. Differential cost or expense is the difference between the amounts of relevant costs for two alternatives.

Future costs that do not differ between alternatives are irrelevant and may be ignored since they affect both alternatives similarly. Past costs, also known as sunk costs, are not relevant in decision making because they have already been incurred; therefore, these costs cannot be changed no matter which alternative is selected.

For certain decisions, revenues do not differ between alternatives. Under those circumstances, management should select the alternative with the least cost. In other situations, costs do not differ between alternatives. Accordingly, management should select the alternative that results in the largest revenue. Many times both future costs and revenues differ between alternatives. In these situations, the management should select the alternative that results in the greatest positive difference between future revenues and expenses (costs).

2. Segmented financial Reporting.

Accounting term related Segment financial reporting aws followes

Business segment: a component of an entity that (a) provides a single product or service or a group of related products and services and (b) that is subject to risks and returns that are different from those of other business segments.

Geographical segment: a component of an entity that (a) provides products and services within a particular economic environment and (b) that is subject to risks and returns that are different from those of components operating in other economic environments.

Reportable segment: a business segment or geographical segment for which US GAAP requires segment information to be reported. [IAS 14.9]

Segment revenue: revenue, including intersegment revenue, that is directly attributable or reasonably allocable to a segment. Includes interest and dividend income and related securities gains only if the segment is a financial segment (bank, insurance company, etc.).

Segment expenses: expenses, including expenses relating to intersegment transactions, that (a) result from operating activities and (b) are directly attributable or reasonably allocable to a segment. Includes interest expense and related securities losses only if the segment is a financial segment

3. Key Assumption of Cost-volume-profit analysis.

it has following assumptio which are as followes:-
a) Cost can be seggregated between fixed and variable cost.
b) Variable cost is constant per unit and fixed cost is constant in total
c) revenue are constant per unit
Additional it has following assumption
a) Inventory level is constatn with the no. of unit produced eqaling no. of unit sold.
if inventory flacutalte the might be some of cost may flactuate.

Please rate my answer if your query got solved and if not then please ask me question i would love to solve the same.