Marginal Costing as a tool for decision

making
 Decision
Making

Exploring
Selection of
Key factor Make or Buy foreign Desired Profit
Sales Mix
markets
 Key factor at Dabur
• Dabur has provided the following information related to cost and sales related
to production of two flavors of fruit juices.

Particulars Cranberry Juice Apple Juice

Selling Price/Unit Rs. 100 Rs. 120
Consumption of material 2 Kgs 3 Kgs
Direct Material 10 15
Direct wages 20 16
Machine hours used 3 2
Fixed Costs 5 10
Variable overheads 15 20
 Key factor at Dabur
• Comment on the profitability of each
product when:
a) Case 1: Total sales potential in units is
limited

b) Case 2: Total sales potential in value is

limited

c) Case 3: Raw material is in short supply

d) Case 4: Production capacity (in terms of

machine hours) is the limiting factor
 Poll – II
• ITC is manufacturing two different soaps. The sales and cost data is
presented below. The key factor is ‘Total Sales Potential (in value) is limited’.
Particulars Superia Fiama Di Wills
Selling price per unit $15 $25
Variable cost per unit $10 $15

• In such case, the contribution in terms of key factor will be:

a) 30 and 40
b) 40 and 30
c) 40 and 33.3
d) 33.3 and 40
 ‘Exploring Foreign Markets’ at Funskool
Year 2019 • The analysis of the cost per
• Funskool annually manufactures 10,000 toys are as under:
10,000 toys at a cost of Rs. 4 per unit. Particulars Amount (in Rs.)
• There is a home market for Material 15,000
consuming the entire volume of toys Labor 10,000
at a sales price of Rs. 4.25 per unit. Fixed Cost 8,000
Variable Costs 6,000

Year 2020
• In the year 2019, there is fall in
demand for home market which can
consume 10,000 toys only at a sales
price of Rs. 3.72 per unit.
 Exploring Foreign Markets
• The foreign market is explored.

• It is found that market can consume 20,000

units of the product if offered at a sale price
of Rs. 3.55 per unit.

• It is also found that the fixed costs will

increase by 10% for the additional output
above initial input of 10,000 units.

• Is it worthwhile to capture the foreign

market?
 Key Factor
• Apollo Tyres is producing two different kind of tyres, the limiting factor is
availability of labour hours.
Particulars Summer Tyres Winter Tyres
(cost per unit) (cost per unit)
Materials 5 5
Labor
6 hours @ Rs. 0.5 per hour 3 --
3 hours @ Rs. 0. 5 per hour -- 1.5
Overheads:
Fixed 1.5 0.75
Variable 1.5 1.5
Selling Price 14 11

• Which product one is more profitable in terms of key factor?

 Poll – III

• Cadila Healthcare Limited discovers that while it costs Rs 9.5

per unit to make a medicine in factory, the same is available
in the market at Rs 4.5 each.
• The breakdown of costs is:
1) Materials is Rs 3.5 per unit,
2) Labor is Rs 1.5 per unit,
3) Fixed expenses is Rs 4.50 and

• Shall the product be made in the factory or bought from the

outside supplier?
a) Make the product in factory
b) Buy the product from outside supplier
 Desired Profits
• The sales and profits for the ACC Cements are given below.
• The company wants to earn a desired profit of Rs. 20,000.

Year Sales Profit

2018 540,000 12,000
2019 600,000 30,000

• You are required to calculate :

a) P/V Ratio
b) Sales required to earn the profit of Rs. 20,000
c) Profit when sales are Rs. 140,000
 Poll – IV
• Following statements are presented related to fixed costs of the
ITC company in relation to manufacturing of Vivel Soap.

• Which of the following statements are true with regard to CVP

analysis?
a) Fixed costs vary on per unit basis but remain the same in total as
the level of activity changes
b) Fixed costs vary on per unit basis as the level of activity changes
c) Fixed costs vary in total in direct proportion to changes in the
level of activity
d) Fixed costs remain the same in total as the level of activity
changes