Example 11. From the following particulars of India ltd. Find out

break-even point in units & sales:

Fixed Expenses Rs. 25000

Selling price per unit Rs. 100

Variable cost per unit Rs. 50

Example 12: You are given the following particulars:

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.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

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

Ex17

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

Sales Profit Rs. Rs.

2008 50000 3000(Loss) 2009 65000 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 for the Profit of Rs. 20000.

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

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 1000000 Less:- Variable Cost 600000

Contribution 400000 Less:- Fixed Cost 30000

Net Profit 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.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 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.

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.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, Ex.7

Following 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 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 800000 Less:- Variable Cost 600000

Contribution 200000 Less:- Fixed Cost 60000

Net Profit 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 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.

Marginal Cost Equation:- Sales = Variable Cost + Fixed Expenses Profit/ Loss

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 =

Break-Even or Cost-Volume-Profit Analysis Formula:-

1. B.E.P. (In Units) =Fixed Cost

Contribution Per Unit or B.E.P. (In Units) =

Fixed Cost

Selling PriceVariable Cost

2. B.E.P. (Sales) =Fixed Cost

Contribution Per Unit Selling Price or B.E.P. (Sales) =

Fixed Cost

Total Contribution Total Sales

Or B.E.P. (Sales) =F S

SV or B.E.P. (Sales) =

Fixed Cost

Profit Volume Ratio

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) or

2. Profit= Sales x P/V Ratio FC

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 Budgeted cost per unit:

Material Rs. 10 Direct labour Rs. 15

Variable overhead Rs. 10 Fixed cost per unit Rs. 10(45)

Budgeted profit per unit Rs. 10

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

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 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 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:

1. Heavy demand for the product

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

Problem 23. Based on Introduction of A New Product

A concern manufacturing product A has provided the followinginformation:

R

Rs.

Sales 75,000

Direct materials 30,000

Direct labour 10,000

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

under:

Direct materials 10,000

Direct labour 8,000

Variable overhead 5,000

Fixed overhead Nil

Advise whether the product B will be profitable or not

Problem Based on Level of Activity Planning Problem 24. Following is

the cost structure of blue sky corporation, Mumbai, manufacturers of smart

phone.

Level of activity

Particulars 50% 70% 90%

Output (in units ) 1000 1400 1800

Cost (in Rs.)

Materials 5,00,000 7,00,000 9,00,000

Labour 1,00,000 1,40,000 1,80,000

Factory overhead 50,000 70,000 90,000

Factory Cost 6,50,000 9,10,000 11,70,000

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.25.( Key Factor) from the following data, which product would

you recommend to be manufactured in a factory, time, being the

key factor?

Particulars Per Unit of

Product X

Per Unit of

Product Y

Direct Material 30 20

Direct Labour At Re.1 Per Hour 5 8

Variable Overhead At Rs.2 Per Hour 3 8

Selling Price 150 175

Standard Time To Produce 4 Hours 6 Hours

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: Per Cycle

Materials 50

Labour 10

Variable Overheads 20

Total Cost 80

Fixed Overheads 30

Profit 50

Selling Price 160

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

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%?

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,