Contribution/ Gross Margin

Difference between sales and Marginal Cost of Sales.

Marginal Costing

Marginal Cost is defined as, ‘the change in aggregate costs due to change in the volume of production

Break Even /Cost Volume Profit Analysis

Measures inter relationship between costs, volume & profit at various level of activity.

Profit Volume Ratio/ Marginal Income Ratio/ Variable Profit Ratio:-

It is used to measure the relationship of contribution, the relative profitability of

Other Formula:-

Margin of Safety:-Refer to the excess of actual sales over the break even sales.

Sales

(-) Variable Cost/Marginal Cost

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Contribution

(-) Fixed Cost

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Profit

Contribution= Sales – Variable Cost

Contribution = Fixed Exp. + Profit

OrC= S – V.CC= F.C+ P

Break Even Point in Units:-

1. BEP in Units= Total Fixed Cost / Contribution per Unit or

2. BEP in Units= Total Fixed Cost / Selling Price Per Unit - Variable Cost Per Unit

Break Even in Sales Volume:-

1. BEP in Sales = Fixed cost x Sales / Sales – V.C or

2. BEP in Sales = F x S / S - V

3. BEP in Sales = Fixed Cost / Profit Volume Ratio

1. Profit Volume Ratio = Contribution / Sales x 100 or

2. Profit Volume Ratio = S – V / S x 100

Fixed Cost = BEP x P/V Ratio Contribution = Sales x P/V Ratio Fixed Cost :

FC= Sales x P/V Ratio – Profit Marginal Costing/Variable Cost :

Marginal Cost =Sales x (1 – P/V Ratio) Profit on Sale :

1. Profit = Sales – (FC+VC) or2. Profit= Sales x P/V Ratio - FC

Sales required in units to maintain a desired profit:-1. = Fixed Cost + Desired Profit / Profit Volume Ratio x 100 or2. = F + P / Profit Volume Ratio

MOS= Total Sales – Break Even Sales or

=Profit / P/V Ratio

Profit = Margin of Safety x P/V Ratio

Margin of Safety Expressed in Percentage = Margin of Safety / Total Sales x 100

Unit: 6 Decision Making Techniques Prepared By Mr.

Rupesh Dahake

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.3 From the following information calculates:1. P/V Ratio2. Break Even Point3. If the selling price is reduced to Rs. 80, calculate

New Break Even Point.Total Sales Rs. 500000Selling price Per Unit Rs. 100Variable cost per unit Rs. 60Fixed Cost Rs. 120000 Ans:P/V Ratio: 40% , BEP: Rs. 300000, New BEP: 320000

Ex.4 Sales Rs. 200000Profit Rs. 20000Variable Cost: 60% You are required to calculate:

1. P/V Ratio2. Fixed Cost3. 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.5Form the following particulars calculate:

a) P/V Ratiob) Profit when sales are Rs. 40000, andc) New break even point if selling price is reduced

by 10%Fixed Cost Rs. 8000Breakeven Point =Rs. 20000Variable 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.6The Modern Machine Co.Ltd. Places before you the Following figures:

Sales Profit Rs. Rs.

2008 200000 100002009 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. 300000Ans: P/V Ratio= 40 % , BEP = Rs.175000, Loss Rs. 10000, Profit Rs. 50000,

1. From the Following information, calculate The amount of profit using marginal cost technique:Fixed Cost Rs. 300000Variable Cost Per Unit Rs. 5 Selling Price Per Unit Rs. 10Output Level 100000 Units.

Ans: C: Rs. 500000, Profit Rs. 200000

Ex.7Following record are available from the accounting records of Praveen Ltd.

Sales Profit Rs. Rs.

2008 25000 5000(Loss)2009 75000 5000

Find out :1. P/V Ratio2. Fixed Cost3. Marginal Cost for 2008 and 20094. B.E.P. 5. Margin of Safety for the Profit of Rs. 10000.

Ex.8From a factory records calculate BEP in rupees: Fixed Cost Rs. 20000Selling Price Per Kg Rs. 20Variable Cost Per Kg Rs. 15Estimate the impact of the following on BEP :

a. 20% increases in fixed costb. 20 % increases in variable costc. 20% increases in fixed cost and 20% decreases in

variable cost d. 20% decreases in fixed cost and 20 increases in

variable cost

Ex.9Information regarding ABC Ltd. Are available as follows:

Sales Rs. 600000Variable Cost Rs. 450000Contribution Rs. 150000Fixed Cost Rs. 90000Profit Rs.60000You have to Calculate:

i. P/V Ratioii. Profit on sale of Rs. 900000iii. Sales to Earn a Profit Rs. 90000.

Ans: P/V Ratio 40%, Rs. 135000, Rs.72000

Ex.10From the following find out:

1. P/V Ratio2. BEP3. 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 800000Less:- Variable Cost 600000

Contribution 200000Less:- Fixed Cost 60000

Net Profit 140000

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