Marginal Costing (Recovered)
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marginal costing...
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Example Example 11. From the following following particulars particulars of India ltd. ltd. Find o Example 12: You are given the following particulars: break-even point in units & sales:
Selling price Rs. 100 per unit
Fixed Expenses Rs. 25000
Variable cost Rs. 30 per unit
Selling price per unit Rs. 100
Total fixed cost Rs. 50000
Variable cost per unit Rs. 50
Calculate: 1. Break-even units and value
Ex.13. From the following information calculate:
Ex.14: Mac Tel Ltd. has supplied you the following information
Total sales Rs. 150000
respect of one of its products:
Selling price per unit Rs. 25
Total Fixed Costs 18,000
Variable cost per unit Rs.10
Total Variable Costs 30,000
Fixed cost Rs. 30000
Total Sales 60,000
Units Sold 20,000
1.
P I V Ratio
Find out (a) contribution per unit, (b) break-even point, (c)
2.
Break-Even Break-Even Point
margin of safety, (d) profit, and (e) volume of sales to earn a
If the selling price is reduced to Rs. 80, calculate New Break-Even Point
profit of Rs.24000.
Ex.15. Given the following information:
Ex.16 The IBM Co.Ltd. Places before you the Following figures: Sales Profit Rs. Rs. 2008 220000 10000 2009 800000 20000
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
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
Ex17 Following record are available from the accounting records of Praveen of Praveen Ltd.
2008 2009
Sales Rs. 50000 65000
Profit Rs. 3000(Loss) 10000
Find out : 1. P/V Ratio 2. Fixed Cost 3. Marginal Cost for 2008 and 2009 4. B.E.P. 5. Margin of Safety of Safety for the Profit of Rs. 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. of Rs. 90000 iii. Sales to Earn a Profit Rs. 9000.
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 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.20 From the following find out: 1. P/V Ratio 2. BEP 3. Profit for the sale of Rs. of Rs. 200000. 4. Margin of Safety of Safety from sale of Rs. of Rs. 200000. 5. Required sales to earn a profit of Rs. 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.
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: C: Rs. 500000, Profit Rs. 200000
Ans: Rs. 400000.
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.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.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.
Ex.6 The Modern Machine Co.Ltd. Places before you the Following figures: Sales Profit Rs. Rs. 2008 200000 10000 2009 180000 2000
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.
2008 2009
Sales Rs. 25000 75000
Profit Rs. 5000(Loss) 5000
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.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
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,
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.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
Unit V: Marginal Costing Marginal costing is a technique of costing. This technique of costing uses the c oncept `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.”
Marginal Cost Equation:Contribution:-
Sales = Variable Cost + Fixed Expenses ± Profit/ Loss
The difference between selling price and variable cost (or marginal cost) is known a s `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’.
=
×
=
−
×
=
+
×
The ratio can also be shown by comparing the change in contribution to change in sales, or change in profit to change in sale s.
=
Or
×
=
×
Break-Even or Cost-Volume-Profit Analysis Formula:1. B.E.P. (In Units) =
2. B.E.P. (Sales) =
Fxd C Cbu U
Fxd C Cbu U
Or B.E.P. (Sales) =
B.E.P. (In Units) =
or
or
× Selling Price
F×
B.E.P. (Sales) =
or
−V
B.E.P. (Sales) =
Fxd C −Vb C
Fxd C Cbu
× Total Sales
Fxd C f Vum R
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
Ex.22. Based on Profit Based on Profit Planning:-
company only one item. Budgeted output and sales 15000 units, Budgeted
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
Budgeted cost per unit:
selling price per unit Rs. 55
coming year are as under:
Material
Rs. 10
Direct labour
Rs. 15
Variable overhead
Rs. 10
Fixed cost per unit
Rs. 10(45)
Budgeted profit per unit
Rs. 10
Statement of Profit
X Ltd
Y Ltd
Sales/Revenue
100000
100000
Less:- Variable Cost
25000
20000
Contribution
75000
80000
Less:- Fixed Cost
10000
15000
Budgeted Net Profit
65000
65000
You are required to calculate:
1.
P/V Ratio
2.
B.E.P in Units & Sales
3. 4.
Sales volume to earn a profit of Rs. 200000
5.
Profit when sales are Rs. 1000000
You are required to: Problem
23.
Based
on
Product
Calculate the break-even point for each business
A concern manufacturing product A has provided the followinginformation:
Calculate the sales volume at which each business will earn
Introduction
of
A
New
Rs.50000 Profit. Rs.
State which business is likely to earn greater profit in conditions of:
Sales
75,000
Direct materials
30,000
1. Heavy demand for the product
Direct labour
10,000
2. Low demand for the product, and, briefly give your argument also.
Variable overhead
10,000
Fixed overhead
15,000
In order to increase its sales by Rs .25,000, the concern wants to introduce the product B, and estimates
the costs in connection therewith as
Problem Based on Level of Activity Planning Problem 24. Following is the cost structure of blue sky corporation, Mumbai, manufacturers of smart phone.
under: Direct materials
10,000
Direct labour
8,000
Variable overhead
5,000
Fixed overhead
Nil
Level of activity Particulars
50%
70%
90%
Output (in units )
1000
1400
1800
5,00,000
7,00,000
9,00,000
1,00,000
1,40,000
1,80,000
50,000
70,000
90,000
6,50,000
9,10,000
11,70,000
Cost (in Rs.)
Advise whether the product B will be profitable or not
Materials
Ex.25.( Key Factor)
from the following data, which product would
you recommend to be manufactured in a factory, time, being the
Labour
key factor? Factory overhead Per Unit of
Per Unit of
Product X
Product Y
Direct Material
30
20
In view of the fact that there will be no increase in fixed costs and import
Direct Labour At Re.1 Per Hour
5
8
license for the Display Technology required in the manufacture of its smart
Variable Overhead At Rs.2 Per Hour
3
8
phone. Has been obtained, the corporation is considering an increase in
150
175
production to its full installed capacity. The management requires a
4 Hours
6 Hours
Particulars
Selling Price Standard Time To Produce
Factory Cost
statement showing all details of production costs at 100% level of ac tivity.
Ex.26 (Make or buy) You are the management accountant of Shree CO. Ltd. The Managing director of the company seeks your advice on
As Follows:
the following problem: the company produces a variety of products
Materials
50
Labour
10
Variable Overheads
20
Total Cost
80
Fixed Overheads
30
Rs.1250 per unit. Should the company make or buy “B101”? Assume
Profit
50
that machine hour is the limiting factor.
Selling Price
each having a number of LCD TV parts. Pr oduct “A1” takes 4hours to produce on machine no.101 working at full capacity. “A1” has a
Per Cycle
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 supplier’s price is
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
have to be reached, i.e., how many Motor car will have to be made to get the
product is Rs.50. What will be the selling price?
same amount of profits, if:
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
(a) The selling price is reduced by 10%? (b) The selling price is reduced by 20%?
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