Marginal Costing

1. The Following details are available

Calculate variable cost, fixed cost and contribution for each period

Solution: 𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛/𝑆𝑎𝑙𝑒𝑠 𝑋100

Profit = Sales - Total Cost
Profit
Period I 4200
Period II 5400
𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=(𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛
𝑃𝑟𝑜𝑓𝑖𝑡)/(𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠) 𝑋100
Changes in Profit 1200
Changes in Sales 4000 PV Ratio 30%
Contribution = Salex X PV Ratio
Contribution
P-I 11700
P - II 12900
Fixed Cost = Contribution - Profit Cont - FC = Profit
P-I 7500
P - II 7500

Variable Cost = Total Cost - Fixed

P-I 27300
P - II 30100

Period Variable Cost Fixed Cost Contribution

I 27300 7500 11700
II 30100 7500 12900
Marginal Costing

𝑎𝑙𝑒𝑠 𝑋100
 2. From the following details calculate Break Even Sales

𝐵𝐸𝑃(𝐴𝑚𝑜𝑢𝑛𝑡)=(𝐹𝑖𝑥𝑒𝑑
𝐶𝑜𝑠𝑡)/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜)

Solution:
Total Cost = Sales - Profit
Total Cost
P-I 180000
P - II 260000
PV Ratio = (𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛
𝑃𝑟𝑜𝑓𝑖𝑡)/(𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠)

Changes in Profit 20000

Changes in Sales 100000

PV Ratio 20%

Contribution = Sales X PV Ratio

P- I 40000
P-II 60000

Fixed Cost = Contribution - Profit

P- I 20000
P-II 20000

𝐵𝐸𝑃(𝐴𝑚𝑜𝑢𝑛𝑡)=(𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡)/(𝑃𝑉
𝑅𝑎𝑡𝑖𝑜)

BEP 100,000
 )=(𝐹𝑖𝑥𝑒𝑑
𝑎𝑡𝑖𝑜)
 3. From the following details find out the profit at actual sales:
Actual SalesRs. 20,000
Break Even Sales Rs. 10,000
Fixed Cost Rs. 5,000

Solution
Contribution = Fixed Cost + Profit 𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛/𝑆𝑎𝑙𝑒𝑠 𝑋100

At BEP:
Contribution = Fixed Cost + 0
Contribution = 5000
At BEP Sales of Rs.10,000, the contribution is Rs.5,000
PV Ratio 50%

Contribution at Actual Sales

𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛/𝑆𝑎𝑙𝑒𝑠 𝑋100

Contribution = Sales X PV Ratio

10,000

Sales - VC = Contribution - FC = Profit

Profit = Contribution - FC
Profit = 10,000 - 5,000
Profit = 5,000
Profit at actual sales of Rs.20,000 is Rs.5,000
𝑎𝑙𝑒𝑠 𝑋100
 From the following details find out the margin of safety
Break Even Sales Rs.20,000
Fixed CostRs.10,000
Profit Rs. 5,000

Solution:
𝑀𝑎𝑟𝑔𝑖𝑛 𝑜𝑓 𝑆𝑎𝑓𝑒𝑡𝑦=𝑃𝑟𝑜𝑓𝑖𝑡/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜)

𝐵𝐸𝑆=𝐹𝐶/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜) 𝑋100

𝑃𝑉 𝑅𝑎𝑡𝑖𝑜=10,000/20,000 𝑋100

PV Ratio = 50%

MOS = 5,000/0.50
MOS = 10,000
 Profit and sales for the year 2015 are as follows. Profit Rs.18,000, Sales Rs.2,40,000. In 2016 the
increased by Rs.8,000.
You are required to calculate:
P/V Ratio
Sales required to achieve a profit of Rs.1,00,000
Sales at Break Even Point.

Solution:
a) Calculation of PV Ratio
𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=(𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛 𝑃𝑟𝑜𝑓𝑖𝑡)/(𝐶ℎ𝑎𝑛𝑔𝑒𝑠 𝑖𝑛
𝑆𝑎𝑙𝑒𝑠) 𝑋100
PV Ratio = 8,000/40,000
PV Ratio = 20%

b) Sales required to achieve a profit of Rs.1,00,000

Fixed Cost = Contribution - Profit
Contribution = Sales X PV Ratio
Sales = 2,40,000+40,000
Sales = 2,80,000
Contribution = 2,80,000 X 0.20
Contribution = 56,000

Profit = 18,000 + 8,000

Profit = 26,000

Fixed Cost = Contribution - Profit

Fixed Cost = 56,000 - 26,000
Fixed Cost = 30,000

Contribution at a profit of Rs.1,00,000

Contribution = Fixed Cost + Profit
Contribution = 1,30,000

𝑃 𝑉𝑅𝑎𝑡𝑖𝑜=𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛/𝑆𝑎𝑙𝑒𝑠 𝑋100
Sales = 1,30,000/0.20
Sales = 1 650,000
𝑀𝑂𝑆=𝑃𝑟𝑜𝑓𝑖𝑡/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜)
MOS 500,000

c) Calculation of BEP
𝐵𝐸𝑆=𝐹𝐶/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜) 𝑋100

BES 150,000
2,40,000. In 2016 the sales increased by Rs.40,000 and the profit naturally
 XYZ has prepared the following budget estimates for the year 2017-18
Sales in units 15,000
Fixed expenses Rs.34,000
Sales in volume Rs.1,50,000
Variable cost per unit Rs.6
You are required to:
a)Find out the P/V Ratio, break-even point and margin of safety
b)Calculate the revised P/V ratio, break-even point and margin of safety in each of the cases:
i)Decrease of 10% in the selling price
ii)Increase in 10% in variable costs

Solution:
a)Find out the P/V Ratio, break-even point and margin of safety

Contribution = Sales - Variable Cost

Contribution = 1,50,000 - (15,000 X 6)
Contribution = 1,50,000 - 90,000
Conribution = 60,000

PV Ratio = (60,000/1,50,000)X100
PV Ratio= 40%

𝐵𝐸𝑆=𝐹𝐶/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜) 𝑋100

BES= 34,000/0.40
BES= 85000
Break Even Sales = 85,000

𝑀𝑂𝑆=𝑃𝑟𝑜𝑓𝑖𝑡/(𝑃𝑉 𝑅𝑎𝑡𝑖𝑜)

Profit = Contribution - Fixed Cost

Profit = 60,000 - 34,000
Profit = 26,000

MOS = 26,000/0.40
65000
OR
MOS = Sales - Breakeven Sales
MOS = 1,50,000 - 85,000
MOS = 65,000
b)Calculate the revised P/V ratio, break-even point and margin of safety when selling prices decrease by 10%
Sales = 1,50,000

Contribution = Sales - Variable Cost

45000
PV Ratio = 45,000/1,35,000
33.33%
BEP = 34,000/0.3333
102001

Profit = Contribution - Fixed Cost

Profit = 45,000 - 34,000
Profit = 11,000
Margin of Safety = 11,000/0.3333
MOS= 33003

b)Calculate the revised P/V ratio, break-even point and margin of safety when variable cost increases by 10%
Sales = 1,50,000 X 0.90
135000 Variable Cost = Rs.6.60 Per unit
Contribution = Sales - Variable Cost Total Variable Cost = 15,000 X 6.60
51000 99000
PV Ratio = 51,000/1,50,000
34.00%
BEP = 34,000/0.34
100000

Profit = Contribution - Fixed Cost

Profit = 51,000 - 34,000
Profit = 17,000
Margin of Safety = 17,000/0.34
MOS= 50000
ch of the cases:
es decrease by 10%

st increases by 10%
 1.        You are given the following data:
Sales price Rs. 350 per unit
Variable cost Rs. 200 per unit
Fixed Expenses Rs.16,50,000
Ascertain:
a)      Break-even point
b)      Selling price per unit if break-even point is brought up to 15,000 units and
c)      Selling price per unit if break-even point is brought down to 10,000 units.

Solution
a) Calculation of BEP

𝐵𝐸𝑃=(𝐹𝑖𝑥𝑒𝑑 𝐶𝑜𝑠𝑡)/(𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑃𝑒𝑟 𝑈𝑛𝑖𝑡) 𝑋100

Contribution per unit = Selling Price Per unit - Variable Cost per unit
= 350 - 200
Contribution Per Unit = 150

BEP = 16,50,000/150
BEP= 11000

b)      Selling price per unit if break-even point is brought up to 15,000 units and
Variable Cost = 15,000 X 200
3000000
Total Cost = VC + FC
Total Cost = 30,00,000 + 16,50,000
Total Cost = 4,650,000
Selling Price Per Unit = 46,50,000/15,000
Selling Price P U 310

c) Selling price per unit if break-even point is brought down to 10,000 units and
Variable Cost = 10,000 X 200
2000000
Total Cost = VC + FC
Total Cost = 20,00,000 + 16,50,000
Total Cost = 3,650,000
Selling Price Per Unit = 36,50,000/10,000
Selling Price P U 365