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Mar 10, 2014

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marginal costing

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marginal costing

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Find outExample 12: You are given the following particulars: break-even point in units & sales: Fixed Expenses Rs. 25000 Selling price per unit Rs. 100 Variable cost per unit Rs. 50 Selling price Rs. 100 per unit Variable cost Rs. 30 per unit Total fixed cost Rs. 50000 Calculate: 1. Break-even units and value

Ex.13. From the following information calculate: Total sales Rs. 150000 Selling price per unit Rs. 25 Variable cost per unit Rs.10 Fixed cost Rs. 30000 1. P I V Ratio 2. Break-Even Point If the selling price is reduced to Rs. 80, calculate New Break-Even Point

Ex.14: Mac Tel Ltd. has supplied you the following information in respect of one of its products: Total Fixed Costs 18,000 Total Variable Costs 30,000 Total Sales 60,000 Units Sold 20,000 Find out (a) contribution per unit, (b) break-even point, (c) margin of safety, (d) profit, and (e) volume of sales to earn a profit of Rs.24000. Ex.16 The IBM Co.Ltd. Places before you the Following figures: Sales Profit Rs. Rs. 2008 220000 10000 2009 800000 20000 You are required to 1. Determine P/V Ratio 2. Determine Sales at Break Even Profit 3. Predict the expected profit or loss with Sales of a) Rs. 150000 , b) Rs. 400000

Ex.15. Given the following information: Fixed cost = Rs. 45000 Break-even sales = Rs. 150000 Profit = Rs. 75000 Selling price per unit = Rs. 35 You are required to calculate: (i) Sales and marginal cost of sales and

Ex17 Following record are available from the accounting records of Praveen Ltd. Sales Rs. 50000 65000 Profit Rs. 3000(Loss) 10000 Ex.18 From a factory records calculate BEP in rupees: Fixed Cost Rs. 10000 Selling Price Per Kg Rs. 2 Variable Cost Per Kg Rs. 5 Estimate the impact of the following on BEP : a. 20% increases in fixed cost b. 20 % increases in variable cost c. 20% increases in fixed cost and 20% decreases in variable cost d. 20% decreases in fixed cost and 20 increases in variable cost

2008 2009

Find out : 1. P/V Ratio 2. Fixed Cost 3. Marginal Cost for 2008 and 2009 4. B.E.P. 5. Margin of Safety for the Profit of Rs. 20000.

Ex.19 Information regarding ABC Ltd. Are available as follows: Sales Rs. 60000 Variable Cost Rs. 45000 Contribution Rs. 15000 Fixed Cost Rs. 9000 Profit Rs.6000 You have to Calculate: i. P/V Ratio ii. Profit on sale of Rs. 90000 iii. Sales to Earn a Profit Rs. 9000.

Ex.20 From the following find out: 1. P/V Ratio 2. BEP 3. Profit for the sale of Rs. 200000. 4. Margin of Safety from sale of Rs. 200000. 5. Required sales to earn a profit of Rs. 10000000. Sales Less:- Variable Cost Contribution Less:- Fixed Cost Net Profit 1000000 600000 400000 30000 370000

1. From the Following information, calculate The amount of profit using marginal cost technique: Fixed Cost Rs. 300000 Variable Cost Per Unit Rs. 5 Selling Price Per Unit Rs. 10 Output Level 100000 Units. Ans: C: Rs. 500000, Profit Rs. 200000 Ex.3 From the following information calculates: 1. P/V Ratio 2. Break Even Point 3. If the selling price is reduced to Rs. 80, calculate New Break Even Point. Total Sales Rs. 500000 Selling price Per Unit Rs. 100 Variable cost per unit Rs. 60 Fixed Cost Rs. 120000 Ans:P/V Ratio: 40% , BEP: Rs. 300000, New BEP: 320000 Ex.5 Form the following particulars calculate: a) P/V Ratio b) Profit when sales are Rs. 40000, and c) New break even point if selling price is reduced by 10% Fixed Cost Rs. 8000 Breakeven Point =Rs. 20000 Variable Cost = Rs. 60 Per Unit. Expla: P/V Ratio = Fixed Cost / Break Even Point x 100 = Profit when sales = Sales x P/V Ratio Fixed Cost = Ans: P/V Ratio: 40% , Profit Rs. 8000, Ex.7 Following record are available from the accounting records of Praveen Ltd. Sales Rs. 25000 75000 Profit Rs. 5000(Loss) 5000

Ex.2 From the following particulars finds out breakeven point: Fixed Expenses Rs.100000 Selling Price Per Unit Rs. 20 Variable Cost Per Unit Rs. 15 Ans: Rs. 400000. Ex.4 Sales Rs. 200000 Profit Rs. 20000 Variable Cost: 60% You are required to calculate: 1. P/V Ratio 2. Fixed Cost 3. Sales Volume to earn a profit of Rs. 50000. Ans: VC Rs. 120000, P/V Ratio: 40%, Contribution: Rs. 80000, Sales Volume Rs. 275000. Ex.6 The Modern Machine Co.Ltd. Places before you the Following figures: Sales Profit Rs. Rs. 2008 200000 10000 2009 180000 2000 You are required to 1. Determine P/V Ratio 2. Determine Sales at Break Even Profit 3. Predict the expected profit or loss with Sales of a) Rs. 15000 , b) Rs. 300000 Ans: P/V Ratio= 40 % , BEP = Rs.175000, Loss Rs. 10000, Profit Rs. 50000,

2008 2009

Find out : 1. P/V Ratio 2. Fixed Cost 3. Marginal Cost for 2008 and 2009 4. B.E.P. 5. Margin of Safety for the Profit of Rs. 10000.

Ex.8 From a factory records calculate BEP in rupees: Fixed Cost Rs. 20000 Selling Price Per Kg Rs. 20 Variable Cost Per Kg Rs. 15 Estimate the impact of the following on BEP : a. 20% increases in fixed cost b. 20 % increases in variable cost c. 20% increases in fixed cost and 20% decreases in variable cost d. 20% decreases in fixed cost and 20 increases in variable cost

Ex.9 Information regarding ABC Ltd. Are available as follows: Sales Rs. 600000 Variable Cost Rs. 450000 Contribution Rs. 150000 Fixed Cost Rs. 90000 Profit Rs.60000 You have to Calculate: i. P/V Ratio ii. Profit on sale of Rs. 900000 iii. Sales to Earn a Profit Rs. 90000. Ans: P/V Ratio 40%, Rs. 135000, Rs.72000

Ex.10 From the following find out: 1. P/V Ratio 2. BEP 3. Profit for the sale of Rs. 1000000. 4. Margin of Safety from sale of Rs. 1200000. 5. Required sales to earn a profit of Rs. 200000. Sales Less:- Variable Cost Contribution Less:- Fixed Cost Net Profit 800000 600000 200000 60000 140000

Ans: P/V Ratio: 25%, BEP Rs. 240000, Profit= Rs.190000, MOS = 960000, Sales= Rs. 1040000

Marginal costing is a technique of costing. This technique of costing uses the concept `marginal cost. Marginal cost is the change in the total cost of production as a result of change in the production by one unit. Thus marginal cost is nothing but variable cost. Applications of marginal costing Cost control Key Factor Analysis Decision making

Cost-Volume profit analysis or Break Even Analysis: Cost Volume Profit Analysis (C V P) is a systematic method of examining the relationship between changes in the volume of output and changes in total sales revenue, expenses (costs) and net profit. Inter Firm Comparison Meaning: Inter firm comparison can be defined as, a management technique by the use of which it is made possible for an organization to compare its performance with that of the other units engaged in the same activity.

Contribution:- The difference between selling price and variable cost (or marginal cost) is known as `contribution or `gross

margin. Contribution = Selling Price Variable Cost or = Fixed Cost + Profit or Loss

Profit Volume Ratio (P/V Ratio):- The profitability of business operations can be found out by calculating the p/v ratio. It is also

known as `marginal-income ratio, `contribution-sales ratio or `variable-profit ratio.

Or

or

The ratio can also be shown by comparing the change in contribution to change in sales, or change in profit to change in sales.

=

Or

Fixed Cost Contribution Per Unit

or

Fixed Cost

or

Fixed Cost

Or B.E.P. (Sales) =

FS SV

or

Fixed Cost

Margin of Safety

Total sales minus the sales at break-even point are known as the margin of safety. Lower break-even point means a higher margin of safety.

Margin of Safety = Total Sales Sales at B.E.P. or

=

100

( %) =

Desired profit

=

+

Profit on Sales:

1. Profit = Sales (FC+VC) 2. Profit= Sales x P/V Ratio FC or

Ex.21.The following information is available from the annual budget of a company only one item. Budgeted output and sales 15000 units, Budgeted selling price per unit Rs. 55 Material Variable overhead Budgeted profit per unit Budgeted cost per unit: Rs. 10 Rs. 10 Rs. 10 Direct labour Fixed cost per unit Rs. 15 Rs. 10(45)

Ex.22. Based on Profit Based on Profit Planning:Two businesses, X ltd. And Y ltd. Sell the same type of product in the same type of market. Their budgeted profit and loss accounts for the coming year are as under:

Statement of Profit

Sales/Revenue Less:- Variable Cost Contribution Less:- Fixed Cost Budgeted Net Profit You are required to:

of A New Product R Rs.

X Ltd

100000 25000 75000 10000 65000

Y Ltd

100000 20000 80000 15000 65000

1. 2.

3. 4.

5.

Sales volume to earn a profit of Rs. 200000

Profit when sales are Rs. 1000000

Problem

23.

Based

on

Introduction

Calculate the break-even point for each business Calculate the sales volume at which each business will earn Rs.50000 Profit. State which business is likely to earn greater profit in conditions of:

Sales Direct materials Direct labour Variable overhead Fixed overhead the product B, and estimates under: Direct materials Direct labour Variable overhead Fixed overhead 10,000 8,000 5,000 Nil

1. Heavy demand for the product 2. Low demand for the product, and, briefly give your argument also.

the cost structure of blue sky corporation, Mumbai, manufacturers of smart phone. Level of activity Particulars Output (in units ) Cost (in Rs.) Materials 5,00,000 1,00,000 50,000 6,50,000 7,00,000 1,40,000 70,000 9,10,000 9,00,000 1,80,000 90,000 11,70,000 50% 1000 70% 1400 90% 1800

Labour Factory overhead

Particulars Direct Material Direct Labour At Re.1 Per Hour Variable Overhead At Rs.2 Per Hour Selling Price Standard Time To Produce

In view of the fact that there will be no increase in fixed costs and import license for the Display Technology required in the manufacture of its smart phone. Has been obtained, the corporation is considering an increase in production to its full installed capacity. The management requires a statement showing all details of production costs at 100% level of activity.

Ex.26 (Make or buy) You are the management accountant of Shree CO. Ltd. The Managing director of the company seeks your advice on the following problem: the company produces a variety of products each having a number of LCD TV parts. Product A1 takes 4hours to produce on machine no.101 working at full capacity. A1 has a selling price of Rs.5000 and a marginal cost, Rs.3500 per unit. B-101 a component part could be made on the same machine in 3 hours for marginal cost of Rs.500 per unit. The suppliers price is Rs.1250 per unit. Should the company make or buy B101? Assume that machine hour is the limiting factor.

As Follows: Materials Labour Variable Overheads Total Cost Fixed Overheads Profit Selling Price Per Cycle 50 10 20 80 30 50 160

but they want to keep the total profits intact. What level of production will

Example 27: P/V Ratio Is 60% and the marginal cost of the product is Rs.50. What will be the selling price?

Ex.28 The Price Structure of AMotor Car Made By The World Travel Co. Ltd. Is This is based on the manufacture of one lakh Motor per annum. The company expects that due to competition they will have to reduce selling prices,

have to be reached, i.e., how many Motor car will have to be made to get the same amount of profits, if: (a) The selling price is reduced by 10%? (b) The selling price is reduced by 20%?

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