Marginal Costing

1) Question: a) From the following particulars, calculate the sales required to earn a profit of Rs.1,20,000/Sales Variable costs Fixed costs b) c) d) e) 6,00,000 3,75,000 1,80,000

Sales revenue if fixed cost Rs.10,000/- net profit Rs.10,000/- P/v Ration:40% Profit if fixed cost =Rs.1,75,000/- ,sales =Rs.7,50,000/-, p/v ration= 35% Margin of safety sales ,if sales=Rs.10,00,000/-,fixed cost:Rs.3,00,000/- Profit Rs.2,00,000/p/v ration if sales in the first year & second year are Rs.40,000 & Rs.50,000 respectively and profit in the first year and second year are Rs.6,000/- and Rs.6,500/- respectively.

2)

The cost and price structure of a product of a company are as follows: Selling price Rs.10 per piece Variable manufacturing cost Fixed cost : Manufacturing Administration Selling Rs.3 per piece 75,000 per year 12,000 per year 13,000 per year

The company has to pay to its agents a commission of 20% on sales. Compute: a) BEP b) p/v ration c) if company wants to have a profit of Rs.20,000/-. What should be the level of sales? d) If the sales are 25,000 pieces per year find the profit. e) If the company wants to reduce the price to Rs.8.75 per piece, what should be the level of sales to maintain the profit of Rs.20,000? 3) Raj corporation ltd. Has prepared the following budget estimates for the year 2010-11. Sales units Fixed expenses Sales value Variable cost 15,000 units 34,000 1,50,000 Rs.6 per unit

You are required to: a) Find 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 following cases: i. Decrease of 10% in selling price ii. Increase of 10% in variable costs iii. Increase of sales volume by 2,000 units iv. Increase of Rs.9000 in fixed costs, decrease in variable cost by 5 % & increase in sales volume by 5 % 4) S ltd furnishes you the following information relating to the half year ended 30th sept 2010: Fixed expenses 45,000 Sales value 1,50,000 Profit 30,000 During the second half of the year the company has projected a loss of Rs.10,000. Calculate: i) The break even point and margin of safety for six months ending 30th sept 2010. ii) The expected sales value for second half of the year assuming that the P/V ratio and fixed expenses remain constant in the second half year also. iii) The break even point & margin of safety for the whole year 2010-2011 5) A retail dealear in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31st dec 2010. Selling price per shirt Variable cost per shirt Fixed cost: -staff salaries for the year -general office costs for the year -advertising costs for the year Rs. 40 25 1,20,000 80,000 40,000

As a cost accountant of the firm, you are required to answer the following each part independently. i) Calculate the break even point and margin of safety in sales revenue and number of shirts sold. ii) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm. iii) If it is decided to introduce selling commission of Rs.3 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs.15,000/iv) Assuming that for the year 2011 an additional staff salary of Rs.33,000/- is anticipated, and price of a shirt is likely to be increased by 15% what should be the break even point in number of shirts and sales revenue?

6) A company sells its product at Rs.15/- per unit. In a period if it produces and sells 8,000 units, it incurs a loss of Rs.5 per unit. If the volume is raised to 20,000units, it earns a profit of Rs.4 per unit. Calculate break even point both in terms of rupees as well as in units. 7) 8) From the following particulars, you are required to calculate: i) ii) iii) iv) v) p/v ratio margin of safety BEP sales Profit when sales is Rs.2,00,000/Sales required to earn a net profit of Rs.40,000/Year I II Sales 2,40,000 2,80,000 Units 24,000 28,000 Total cost 2,22,000 2,54,000

You may make possible assumptions. Also evaluate the effect on IInd years profit if there is: a) 20% decrease in sales b) 20% decrease ub sales accompanied by 10% increase in sales price and reduction in fixed cost Rs.3,500/-

9) Sania engineering limited manufactures and sells four products: A, B,C & D. the sales mix in value compresses 33 1/3% ,41 2/3% , 16 2/3% and 8 1/3% of A,B,C and D respectively. The total budgeted sales at 100% is Rs.60,000 per month. Operating costs are as given below: Product A Product B Product C Product D 60% of selling price 68% of selling price 80% of selling price 40% of selling price

Fixed cost are:Rs.14,700/- per month. Calculate the break even point and p/v ration for the enterprise as a whole.

10) The particulars of two plants producing an identical product with the same selling price are as under: Plant A Capacity utilixatin 70% (Rs lacs) Sales 150 Variable costs 105 Fixed costs 30 It has been decided to merge plant B with Plant A. Plant B 60% (Rs lacs) 90 75 20

The additional fixed expenses involved in the merger amounts to Rs.2 lacs. Required: 1) Find the break even point of plant A and plant B before merger and the break even point of the merged plant. 2) Find the capacity utilization of the merged plant required to earn a profit of Rs.18 lacs. 11) The following set of information is presented to you by your client saif ltd. Producing two products X & Y. X Rs.20 Rs.6 Y Rs.18 Rs.4

Direct materials (Per unit) Direct wages (Per unit) I) II) III) IV)

V)

Fixed expenses during the period are expected to be Rs.1600/Variable expenses are allocated to the products at the rate of 100% of direct wages Selling price (Per unit) X:Rs.40 Y:Rs.30 Proposed sales mix: a. 100 units of X and 200 units of Y b. 150 units of X and 150 units of Y c. 200 units of X and 100 units of Y As a cost accountant you are requested to present to the management of Saif ltd the following: a. The unit marginal cost and unit contribution b. The total contribution & resultant profit from each of the above sales mix. c. The proposed sales mix to earn a profit of Rs.300 and Rs.600 with the total sales of X and Y being 300 units.

Home work
12) Question: f) From the following particulars, calculate the sales required to earn a profit of Rs.2,20,000/Sales Variable costs Fixed costs g) h) i) j) 7,00,000 4,75,000 1,80,000

Sales revenue if fixed cost Rs.20,000/- net profit Rs.20,000/- P/v Ration:40% Profit if fixed cost =Rs.1,85,000/- ,sales =Rs.7,80,000/-, p/v ration= 35% Margin of safety sales ,if sales=Rs.10,00,000/-,fixed cost:Rs.3,50,000/- Profit Rs.2,50,000/p/v ration if sales in the first year & second year are Rs.30,000 & Rs.60,000 respectively and profit in the first year and second year are Rs.7,000/- and Rs.6,700/- respectively.

13) The cost and price structure of a product of a company are as follows: Selling price Rs.10 per piece Variable manufacturing cost Fixed cost : Manufacturing Administration Selling Rs.3 per piece 73,000 per year 11,000 per year 14,000 per year

The company has to pay to its agents a commission of 20% on sales. Compute: f) BEP g) p/v ration h) if company wants to have a profit of Rs.22,000/-. What should be the level of sales? i) If the sales are 26,000 pieces per year find the profit. j) If the company wants to reduce the price to Rs.8.75 per piece, what should be the level of sales to maintain the profit of Rs.22,000? 14) Raj corporation ltd. Has prepared the following budget estimates for the year 2010-11. Sales units Fixed expenses Sales value Variable cost 15,500 units 34,500 1,51,000 Rs.6 per unit

You are required to: c) Find the p/v ratio, Break even point and Margin of Safety d) Calculate the revised p/v ratio, Break even point and Margin of safety in each of the following cases: v. Decrease of 10% in selling price vi. Increase of 10% in variable costs vii. Increase of sales volume by 2,000 units viii. Increase of Rs.10,000 in fixed costs, decrease in variable cost by 5 % & increase in sales volume by 5 % 15) S ltd furnishes you the following information relating to the half year ended 30th sept 2010: Fixed expenses 45,700 Sales value 1,50,800 Profit 30,000 During the second half of the year the company has projected a loss of Rs.11,000. Calculate: iv) The break even point and margin of safety for six months ending 30th sept 2010. v) The expected sales value for second half of the year assuming that the P/V ratio and fixed expenses remain constant in the second half year also. vi) The break even point & margin of safety for the whole year 2010-2011 16) A retail dealear in garments is currently selling 24,000 shirts annually. He supplies the following details for the year ended 31st dec 2010. Selling price per shirt Variable cost per shirt Fixed cost: -staff salaries for the year -general office costs for the year -advertising costs for the year Rs. 40 25 1,21,000 80,000 42,000

As a cost accountant of the firm, you are required to answer the following each part independently. v) Calculate the break even point and margin of safety in sales revenue and number of shirts sold. vi) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm. vii) If it is decided to introduce selling commission of Rs.3 per shirt, how many shirts would require to be sold in a year to earn a net income of Rs.15,000/-

viii)

Assuming that for the year 2011 an additional staff salary of Rs.33,000/- is anticipated, and price of a shirt is likely to be increased by 15% what should be the break even point in number of shirts and sales revenue?

17) A company sells its product at Rs.15/- per unit. In a period if it produces and sells 8,000 units, it incurs a loss of Rs.5 per unit. If the volume is raised to 25,000units, it earns a profit of Rs.4 per unit. Calculate break even point both in terms of rupees as well as in units. 18) 19) From the following particulars, you are required to calculate: vi) vii) viii) ix) x) p/v ratio margin of safety BEP sales Profit when sales is Rs.2,40,000/Sales required to earn a net profit of Rs.40,000/Year I II Sales 3,40,000 3,80,000 Units 24,000 28,000 Total cost 2,22,000 2,54,000

You may make possible assumptions. Also evaluate the effect on IInd years profit if there is: c) 20% decrease in sales d) 20% decrease ub sales accompanied by 10% increase in sales price and reduction in fixed cost Rs.3,500/-

20) Sania engineering limited manufactures and sells four products: A, B,C & D. the sales mix in value compresses 33 1/3% ,41 2/3% , 16 2/3% and 8 1/3% of A,B,C and D respectively. The total budgeted sales at 100% is Rs.60,000 per month. Operating costs are as given below: Product A Product B Product C Product D 61% of selling price 67% of selling price 81% of selling price 42% of selling price

Fixed cost are:Rs.14,770/- per month. Calculate the break even point and p/v ration for the enterprise as a whole.

21) The particulars of two plants producing an identical product with the same selling price are as under: Plant A 70% (Rs lacs) Sales 151 Variable costs 110 Fixed costs 30 It has been decided to merge plant B with Plant A. Capacity utilixatin Plant B 60% (Rs lacs) 95 80 20

The additional fixed expenses involved in the merger amounts to Rs.2 lacs. Required: 3) Find the break even point of plant A and plant B before merger and the break even point of the merged plant. 4) Find the capacity utilization of the merged plant required to earn a profit of Rs.18 lacs. 22) The following set of information is presented to you by your client saif ltd. Producing two products X & Y. X Rs.22 Rs.7 Y Rs.20 Rs.3

Direct materials (Per unit) Direct wages (Per unit) VI) VII) VIII) IX)

X)

Fixed expenses during the period are expected to be Rs.1600/Variable expenses are allocated to the products at the rate of 100% of direct wages Selling price (Per unit) X:Rs.50 Y:Rs.20 Proposed sales mix: a. 100 units of X and 200 units of Y b. 150 units of X and 150 units of Y c. 200 units of X and 100 units of Y As a cost accountant you are requested to present to the management of Saif ltd the following: a. The unit marginal cost and unit contribution b. The total contribution & resultant profit from each of the above sales mix. c. The proposed sales mix to earn a profit of Rs.350 and Rs.650 with the total sales of X and Y being 350 units.