Wages And Salaries
Accounting for Profit With Marginal Costing
costing is an accounting term in which costs and expenses are identified by their variability according to the volume of goods bought or produced. By analysing costs according to the variability in prices can significantly improve profit efficiency levels within a business.
Business costs and expenses as expressed as a unit cost of a product can vary significantly as purchase or production volumes change. The first stage in using marginal costing to generate higher levels of profit is to identify the variability of all the individual cost elements.
Costs which are a component part of the product would normally be classified as variable costs since each component would require to be bought in specifically for that product. The cost of items bought for resale would also be classified as variable costs.
Fixed costs would be items not relating to the volume of goods manufactured or sold. Examples would be the premises costs, machinery costs.
A number of business expenses would be semi variable in that they can in some circumstances be viewed as a fixed expense but in other circumstances could also be viewed as variable expenses. Advertising expenses might be regarded as almost fixed expenses to promote the business or products whereas promoting the business name would be largely a fixed cost while specific product related advertising might be viewed as a variable product cost.
Wages and salaries are an important cost to most businesses and would normally be classified as semi variable. Administration salaries are more likely to be fixed while direct labour costs will contain both a fixed and variable element.
To operate a marginal costing program identify the variability of each cost item and evaluate that marginal cost and the fixed overheads of the business. To use the marginal costing as part of an accounting for profit program apply different volumes to the marginal costs.
At the lowest volume the fixed costs might well exceed the marginal profit, which in accounting terms is called the contribution, being the difference between the selling price and the marginal cost. The point at which the overall volume produces neither a loss nor a profit is called the break even point.
Break even analysis is important to ensure there is sufficient market demand to be able to exceed the break even point and the marketing effort will ensure that break even point is not just reached but easily achievable.
A further stage in accounting for profit would be to plan various volumes, the effect those volumes have on variable costs and occasionally on fixed costs too. Determine what is achievable and what is not achievable, the effect on the volume of profit and set business plans accordingly.
In addition to higher volumes producing higher marginal profits the variable costs also reduce when volumes increase and these changes require to be accounted for. Even if goods are being bought in purely for resale the variable costs will vary with volumes.
Buying in 100 items of a product will be cheaper than buying in 2 or 3. Selling and delivering the items individually is likely to cost more in distribution co0sts than selling in parcels of 10 or 20.
By analysing costs and their variability in relation to actual and potential volumes gives the accountant a real voice to influence management decisions in the way the business plans are constructed and by routine checks on progress using marginal costing as part of the budgeting and reporting process maximum profits can be achieved by accounting for profit.
Taxes Levied In California
In California, state taxes have always played an important role. At the end of the 21st century, the state of California spent a large amount of money to provide public services to the residents of California and the local businesses. The money spent has been provided by the state taxes. Three-quarters of the state treasury and one-half of the local shares are all provided by taxes.
The taxes levied by California State are all included as State Taxes. The personal income tax or PIT, the sales and use tax or SUT, the bank and corporation tax and major motor vehicle-related levies account for a major share of California’s own-source revenue.
The income tax, the sales tax and the bank tax finance the state’s General Fund. The largest single tax that is generated by the residents of California is the PIT. This Tax accounts for over half of the General Fund revenue.
The rest of the state expenditure is taken care of by the special funds. These special funds are generated by the motor vehicle-related taxes. Special funds include tobacco-related taxes and sales taxes. These funds support health programs and local governments.
Personal Income Tax:
Established in 1935, the personal income tax or PIT is the state’s single largest revenue source. In the year 2000, California collected over $35 billion as income tax. This tax accounts for roughly 40 percent of all revenues and half of General Fund revenue.
The Personal income tax is levied on both residents and nonresidents. Non-residents pay taxes on income derived only from California sources. In 1998, there were over 13 million PIT returns filed, which include 600,000 from nonresidents. Personal Income Tax also applies to proprietorships, partnerships, estates and trusts.
The income offered by the Sub-chapter S corporations is subject to PIT taxation. Wages and salaries, interest, dividends, business-related income and capital gains are also included in the Income Tax. One of the key articles that make California Income tax unique is that single taxpayers only account for 45 percent of total filed returns, but only 26 percent of tax liabilities. Married-filing-joint taxpayers constitute 40 percent of total tax returns, but over 68 percent of tax liabilities.
Bank and Corporation Tax:
California taxes corporate profits. The Bank and Corporation Tax or BCT is the state’s third largest source of General Fund revenue. The tax raises annually an estimated $6.1 billion or 9 percent of the total. The BCT applies to all corporations that earn income derived from or that is attributable to sources in California.
Except for the first two years of operation of a firm, the basic tax rate on profits is 8.84 percent and an $800 minimum tax. Banks and financial institutions are exempted on local levies, but pay a higher rate of tax, which is 10.84 percent. Banks and corporations are also subjected to an Alternative Minimum Tax or AMT, which is similar to the personal income tax or PIT. This Alternate Minimum Tax has a slightly lower rate of 6.64 percent. Sub-chapter S corporations are subjected to a reduced tax rate of 1.5 percent. California offers a share of the domestic or worldwide business income for multi-state and multinational corporations.