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CHAPTER -1

INTRODUCTION
Of
Marginal Costing

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MARGINAL COSTING (Definition an Meaning!"
Marginal Costing is a principle whereby variable costs are charged to cost
attributable to the relevant period is written off in full against contribution for
that period. Marginal Costing is the ascertainment of cost and effect on profit of
changes in volume or type of output by differentiating between fixed costs and
variable cost.
In Marginal Costing, costs are classified into fixed and variable costs. The
concept of marginal costing is based on the behavior of costs that vary with the
volume of output. Marginal costing is known as variable costing, in which only
Variable costs are accumulated and cost per unit is ascertained only on the basis
of variable costs. ometimes, Marginal Costing and !irect Costing are treated
as interchangeable terms. The ma"or difference between these two is that,
Marginal Cost covers only those expenses which are of variable nature whereas
direct cost may also include cost which besides being fixed in nature identified
with cost ob"ective.
The ICM# has defined marginal cost $as the amount at any given volume of
output by which aggregate costs are changed if the volume of output is
increased or decreased by one unit.$ %rom the analysis of this definition it is
clear that Increase&decrease in one unit of output increases&reduces the total cost
from the existing level to the new level. This increase&decrease in variable cost
from existing of the new level is called as marginal cost.
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Marginal costing means $the ascertainment of marginal costs and of the effect
on profit of changes in volume or type of output by differentiating between
fixed and variables costs.$
Marginal costing is not a method of costing. It is a techni'ue of controlling by
ringing out relationship between profit and volume.
Marginal Costing is the most controversial and interesting sub"ect in cost
counting. It is not actually a method of costing on the lines of any other form of
gating, vi(. "ob costing or process costing etc., but it is a special techni'ue
which present the management with information enabling it to measure the
profitability of in under taking by considering the behavior. It clearly brings out
the relationship between profit and volume of output which is helpful to the
management for decision )making. Marginal costing may be used in con"unction
with other costing methods like "ob or process costing or with other techni'ues
such as standard costing or budgetary control. Marginal cost is nothing but
variable cost. It is clearly imposed of all direct costs and variable overheads.
In *..#. the +direct costing+ or +variable costing+ is used to describe a techni'ue
which is for all practical purposes the e'uivalent of marginal costing.
O#$ECTI%ES O& MARGINAL COSTING"
,. To take decisions on important matters relating to the management.
-. To conduct profit)planning, which can be done from past records. ,
.. To find out the controllable and uncontrollable costs.
/. To fix the exact selling price of the product.
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&EATURES O& MARGINAL COSTING
#ll costs are categori(ed into fixed and variable costs. Variable cost per
unit is same at any level of activity. %ixed costs remain constant in total
regardless of changes in volume.
%ixed costs are considered period costs and are not included in product
cost, only variable costs are considered as product costs.
tock of work)in)progress and finished goods are valued at marginal cost
of production.
In marginal process costing, products are transferred from one process to
another are valued at marginal costs only.
0rices are determined with reference to marginal cost and contribution
margin.
0rofitability of departments, products etc. is determined with reference to
their contribution margin.
In accounting marginal cost, the overhead control account in the cost
ledger represents only the variable overhead. %ixed costs are taken as
expenses in the profit and loss account and thus excluded from costs.
0resentation of data is oriented to highlight the total contribution and
contribution from each product.
The difference in the magnitude of opening stock and dosing stock does
not affect the unit cost of production since all the product costs are
variable costs.
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Segregation of 'osts into fi(e an )aria*le ele+ents
In marginal costing all costs are segregated into fixed and variable elements and
there is no third category of costs.
Marginal costs as products costs)
1nly marginal 2variable3 costs are charged to products).
%ixed cost as period costs)
%ixed costs are treated as period costs and are charged to costing 0rofit
and 4oss #ccount of the period in which they are incurred.
Valuation of inventory)
The word in progress and finished stocks are valued at marginal cost only.
Contribution)
Contribution is the difference between sales value and marginal cost of
sales. The relative profitability of departments is based on a study of
+contribution+ made by each of the products or departments.
0ricing)
In marginal costing, prices are based on marginal cost plus contribution.
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Marginal costing and profit
In marginal costing, profit is calculated by a two stage approach. %irst of
all contribution is determined for each product or department. The
contributions of various products or departments are pooled together and
such a total of contribution from all products is called +fund+. Then from
this fund is deducted the total fixed cost to arrive at a profit or loss. This
is illustrated below5
&i(e an %aria*le Costs"
The classification of costs into fixed and variable is of special interest and
important in marginal costing. These two types of cost behave differently with
changes in the volume of output
&i(e Cost"
%ixed cost means total of all fixed overheads. 6ut it is important to note that in
India, where
,. Most of the labour force is on daily wages.
-. Most of the labour cost consists of !earness #llowance2!#3.
.. +7etrenchment+ and +4ay)off+ is not possible in the ordinary course of
business.
4abour cost is also sometimes treated as fixed and included in fixed 'osts,
Treatment of fixed cost in marginal costing is very peculiar +%ixed Costs+ are
also called as +time costs+, +period costs+, +capacity costs+,+stand -*-)costs+ or
+constant 'osts., %ixed costs are not concerned with t/e output le)el, T/e- are
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rat/er 0erio 'osts, !uring the given period, they are re'uired to be incurred
irrespective of t/e fact, whether the output is produced or not. Therefore, fixed
costs are written)off to marginal cost profit and loss account. They are not
included in cost of goods sold, neither in closing stock. #t the end of the period,
contribution 2i.e. difference between sales and marginal cost3 is credited to
marginal costing profit and loss 8#ccount to which fixed costs are debited. The
contribution first re)scopes %ixed cost and then earns profit. If fixed cost is more
than contribution, then there is a loss.
%ARIA#LE COST" Variable Cost is the aggregate of !irect Material, !irect
4abour and !irect 9xpenses and Variable 1verheads 2i.e. 0rime Cost : Variable
1ver heads3, Variable Cost in total is termed as +Marginal Cost+. It is deducted
from ;,, sales and contribution is ascertained.
$Variable Cost is an operating expense, or a group of operating expenses that
vary directly and in proportion to the level of activity, vi(. sales or production.
9xamples are materials consumed, direct labour, power, sales commission,
utilities, freight, packaging I.C.M.#. India.
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#7<*M9=T I= %#V1*7 1% M#7<I=#4 C1TI=<
%ixed costs are period costs in nature and it should be charged to the
concerned period irrespective of the 'uantum or level of production
or sale.
Inclusion of fixed costs in the product cost distorts the comparability
of products at different volumes and disturbs control actions. It
highlights the significance of fixed costs on profits. In a highly
competitive situation, it may be wise to take an order which covers
marginal costs and makes some contribution towards fixed costs,
rather than lose the order and the contribution by insisting upon a
price above full cost.
The difficulty in apportionment and absorption of fixed costs to
product cost will not exist in contribution approach and it is much
easier for accounting and determination of product costs. The
problems of volume variance in a standard absorption costing system
are overcome. In absorption costing, the under or over)absorbed
fixed production overhead is represented by the volume variance. In
businesses with large variations in stock levels and a high ratio of
fixed costs absorption costing approach can lead to serious
distortions in the profit figures. It is perfectly possible in these
circumstances for profits to decline when sales increase and vice
versa, and it is hard to explain with absorption costing what is
happening or why profit planning and control are therefore made
more difficult. >ith the marginal costing approach, stocks are valued
at variable cost and there is no volume variance. Conse'uently, the
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relationship between sales volume and contribution is much easier to
explain and understand.
Marginal cost method is simple in application and is easy for
exercise of cost control. It is more informative and simple to
understand.
It helps the management with more appropriate information in taking
vital business decisions like make or buy, sub)contracting, export
order pricing, pricing under recession, continue or discontinue a
product&division&sales territory, selection of suitable product mix etc.
0rofit)volume analysis is facilitated by the use break)even charts and
profit)volume graphs, and so on.
The analysis of contribution per key factor or limiting resource is a
useful aid in budgeting and production planning.
0ricing decisions can be based on the contribution levels of
individual products.
The profit and loss statement is not distorted by changes in stock
levels. tock valuations are not burdened with a share of fixed
overhead, so profits reflect sales volume rather than production
volume.
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7esponsibility accounting is more effective when based on marginal
costing because managers can identify their responsibilities more
clearly when fixed overhead is not charged arbitrarily to their
departments or divisions.
Pra'ti'al a00li'ations of Marginal 'osting te'/ni12e,
The Marginal costing techni'ue is useful in managerial decision making in
the following situation5
0rofit planning
Contribution analysis
6reak )even analysis
Cost)volume)profit analysis.
Contri*2tion Anal-sis
The analysis of the contribution per unit each product makes towards fixed
or current periods costs and profit leads to the preparation of statements
showing the total contribution each product class has made towards the
recovery of period costs 2that costs such as annual tooling and product
advertising3 which should be avoided if the product line were dropped.
Contribution is the excess of selling price over variable costs. It is known
as the contribution because it contributes towards recovery of the fixed
costs and profits.
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6y e'uation the concept of contribution can be stated as follows
C ? ) V
>here, C ? Contribution
? ales
V ? Variable Cost.
Contribution is the difference between selling price and variable cost of
sales. In marginal costing contribution is the base in the process of
determining profitability of each product. >hen two or more products are
manufactured net profit per product can+t be ascertained as the fixed
overhead are charged in total to the profit and loss account. @ence
contribution per product plays a very important role in determining
profitability of each product. It is a surplus generated by the product for
recovery of fixed costs.
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E(a+0le"
0articulars 0roduct # 0roduct 6
elling 0rice per unit 7s. ,AA 7s. ,-A
4ess5 Variable cost ;A BA
Contribution 0er *nit ;A /A
Thus, though selling price of product 6 is higher than the selling price of
product a contribution per unit of product 6 is less than of product #.
usually selling price includes an element of profit. @owever, products may
be sold at no profit no loss basis or sometimes may be at loss.
Therefore., the following e'uations can be used5
1. Contribution ? %ixed Cost : 0rofit 2>here product is sold at profit3
2. Contribution ? %ixed Cost 2>here product is sold at profit3
3. Contribution ? %ixed Cost ) 4oss 2>here a loss is incurred3
% ? %ixed Cost
0 ? 0rofit
C ? Contribution
If any three factors are given, the fourth can be ascertained. The e'uation is
also used for the ascertainment of $6reak 9ven 0oint$ 26903 that. The
point or level where there is no profit or no loss.
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0rofit Volume 7atio
This is popularly known as 0 V 7atio,. It expresses the relationship
between contribution and sales. It is expressed in percentage. 0V ratio is
given by the formulae5
) V C ,AA ? C.C,AA
s s
>here, C ? Contribution 2being the difference between sales and variable
costs3
? ales
V ? Variable Costs
0V 7atio can be determined by expressing change in profit or loss in
relation to change in sales. 0V 7atio indicates the relative profitability of
different products, processes and departments. 0V 7atio is most important
in business. It is the indicator of the rate at which the organi(ation in
earning profit. # high ratio indicates a high profitability and a low ratio
indicates low profitability. It is useful for calculating 6reak 9ven 0oint,
profit at a given level of sales, sales re'uired to earn a certain amount of
profit, etc.
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Margin Of Safet-"
It is the excess of present value over the break even sales.
Margin of safety indicates the strength of a business. @igh margin of safety
indicates that profits will be earned even if there is a fall in the selling
price. 1n the other hand if the margin of safety is small, a decline in sales
value will be a matter of great concern to the management. In such a
situation, management may be re'uired to take the following decision
Increase the selling price,
Increase the level of activity,
7educe costs,
ubstitute the existing product with more profitable product.
Margin of safety is also popularly known as M&+s. it is the excess of actual
sale of production volume over the 6reak 9ven
#- for+2la Margin of safet- 'o2l *e state as"
1. M&s. ) 2sales. units) break even units3.
M&. ? 0rofit
0 V 7atio
2. M&s. is directly related to profit. This is shown below5
0 ? M&s C 0V 7atio.
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If the margin of safety is large the business prospect are strong. #s against
this, if the margin of safety is small, the business prospects are weak. The
margin of safety indicates the profitability. The margin of safety could be
improved by increasing the selling price, which improves sales revenue or
by reducing the costs.
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#rea3-E)en An C%P Anal-sis
6reak)even analysis refers to ascertainment of level of operations where
total revenue e'uals to total costs. It is an analysis used to determine the
probable profit or loss at any level of operations. 6reak)even analysis in a
method of studying the relationship among sales revenue, variable cost
and fixed cost to determine the level of operation at which all the costs
are e'ual to its sales revenue and it is the no profit no loss situation. This
is an important techni'ue used in profit planning and managerial decision
making. 6reak)even 0oint is the point at which total revenue is e'ual to
total cost. It is the level of output 2or sale3 where there is no profit no loss.
#t this stage contribution is "ust sufficient to absorb fixed cost. The
organi(ation starts earning profit when the output or sales activity crosses
this point. 1utput or sales below this point result in the loss. 690 can be
calculated by the following formula5
In terms of output ? %ixed Cost
Contribution per unit
In terms of ales Value ? %ixed Cost
0 V 7atio
Ass2+0tion of #rea3 E)en Anal-sis"
,. Costs can be classified into fixed and variable categories.
-. %ixed costs remain fixed for the entire volume.
.. Variable costs change according to the change in output.
/. elling price per unit remains the same for the entire volume.
Uses of #rea3 E)en Anal-sis"
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,. It facilitates determination of selling price which will give the
desired profits.
-. ,t makes it possible to divide the sales volume to cover a given
rate of return on capital employed.
.. The management can forecast profit and volume at levels of
/
activity.
/. ,t suggests to make a change in sale mix.
;. ,t helps management to do inter)firm comparison of
profitability.
D. ,t shows the impact of changes in costs on profits.
E. ,t enables the management to plan for the optimum utili(ation
of capacity.
Li+itations of #rea3 E)en Anal-sis"
,. 6reak 9ven #nalysis is based on the assumption that costs can
be classified into fixed and variable categories. In practice it is
very difficult to have such a clear cut distinction between fixed
and variable cost. These are certain costs which cannot be
classified accurately.
-. It assumes that fixed cost remains constant however, in practice
it may change.
.. Variable costs may not vary in direct proportion to the volume.
/. elling price may not remain constant.
;. The assumption that only one product is produced, does not
hold true in practice.
D. The assumption regarding production and sales does not reali(e
in practice.
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E. The analysis is static however, circumstances are dynamic. 6reak
9ven #nalysis becomes complicated when all these changes are to be
incorporated.
B. It does not consider capital employed in business. It presents only one
fact of profit planning.
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C1T )V14*M9 )071%IT #=#4FI5
Cost )Volume )0rofit2CV03 analysis is an important tool that provides the
management with useful information for managerial planning and decision)
making. 0rofit of a business firm are the result of interaction of many factors.
uch factors determine, whether we have profits or losses and whether profits
increase or decrease over)time.
Cost)Volume)0rofit 2CV03 analysis is a systematic method of examining the
relationships between selling prices, total sales revenue, volume of production,
expenses and profit. This analysis simplifies the real global conditions that a
business enterprise is likely to face. CV0 analysis can play an important role by
providing the management with information regarding the financial results if a
specified level of activity or volume fluctuates.
T/e s2''ess of a *2siness is +eas2re in ter+s of 0rofit an 0rofit is
e0enent on t/ree *asi' fa'tors"
a3 Cost of production
b3 elling prices
c3 Volume of sales
These three factors are inter)dependent because cost determines selling price to
arrive at the desired level of profitG the selling price affects the volume of sales,
the volume of sales directly affects the volume of production and volume of
production in turn influences cost. #n understanding of the inter)relationship
between these factors is extremely useful to management in budgeting and
profit planning. This is because C.V.0. #nalysis helps in predicting the probable
effects of change in any of these factors on the remaining factors.
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4,15 #rea3 E)en C/art
The break even chart is a graphical representation of marginal costing. It
indicates the graphic relationship between costs, volume and profits. It shows
not only the 690 but also the effects of costs and revenue at varying levels of
sales. Therefore, it can be more appropriately called as the Cost Volume 0rofit
<raph 2CV0 graph3. Thus, the break)even chart indicates the following
information
%ixed Cost,
Variable Costs,
Total Cost,
ales Value,
0rofit or 4oss,
6reak)9ven 0oint,
Margin of afety.
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CHAPTER 6
RESEARCH
METHODOLOG7
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Meaning:
7esearch in common language refers to search for knowledge. 1ne can
also define research as a scientific and systematic search for relevant
information on a specific topic. In fact, research is an art of scientific
investigation. 7esearch can also be considered as a movement from the
known to the unknown. It is a voyage of discovery.
7esearch is thus an original contribution to the existing stock of
knowledge making for its advancement. It is perceived of truth with the
help of study, observation, comparison and experiment. In short, the
search of knowledge through ob"ective and systematic method of finding
solution to a problem in research.
Nat2re
This research is based on primary data collected from above mentioned
company. @ence it depends on the data supplied by the company for the
research.
Li+itations
Certain original statements and copies are not attached due to the policy
of company.
Interview was conducted only with account manager and not with
employees of the firm . @ence the facts are based on information gives by
account manager.
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T/e so2r'es of infor+ation are generall- 'lassifie as"

0rimary !ata
econdary !ata
Primary Data:
#ll information collected or generated by the researcher for the purpose
of the pro"ect immediately at hand. In other words, the primary data
refers to the observations, measurements, answers, information which the
investigator collect for the purpose of the research.
It is the data, which is collected for the first time by the researcher, from
the original source.

Primary Data of t/e Pro8e't
%ield investigation was done by visiting to the company.
Interview with the account manager.

Secondary data
#s secondary source the data is collected through the reference books,
internet 7eports on marginal costing carried by the investigators were
observed and studied.
Collected different statements of the company for study of the marginal
costing.
Met/o of sa+0le sele'tion"
Method is carried through the observation and interview method
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CHAPTER 4
COMPAN7 PRO&ILE
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INTRODUCTION O& THE COMPAN7
Co+0an- Profile
a! Na+e "-
Travel Time Car 7entals 0vt 4td
*! Aress "-
6 >ings, #stral Court, #undh, 0une 5 /,, AAE
'! Nat2re of #2siness "-
7enting vehicles on hire charges
! N2+*er of -ears of *2siness "-
ince last ,A years
e! Clients"-
oftware Companies like Infosys 4td, TC4 etc., Multinational and
manufacturing companies.
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%ision of 'o+0an-"
%ision" To be the most afe, 7eliable and upportive travel service provider in
the industry.
Mission of 'o+0an-"
Mission5 To provide timely, effective and safe, transport
Core %al2es"
6e responsible towards the society we live in by providing an environment)
friendly fleet of vehicles.
6eing creative and consistent in our services.
Train and maintain 'uality staff to guarantee the safety and comfort of our
customers.
4ogistics and planning are essentially the most important aspects of an efficient
transport system, especially felt in large corporations. 6y providing an
une'ualled level of 'uality service that stresses #%9TF, 794I#6I4ITF and
*0017T. In order to achieve our mission, T7#V94TIM9 has consistently
recruited the most experienced drivers in the industry. >e conduct scheduled
vehicle inspections and driver training programs to ensure that each passenger
travels safely and securely when using our ervice.
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HISTOR7 O& COMPAN7"
The owners of the company have started this line of business in the year ,HH/ as
a sole proprietary business. #s business increased in the volume and the
proprietor converted the business into 0rivate 4td Company namely ITravel
Time Car 7entals 0vt 4tdJ from -AAD.=ow the business is run as private limited
company.
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SER%ICES #7 THE COMPAN7
Raio 'a0
Technology Makes Magic 0ossible #t Traveltime, all our radio cabs are
e'uipped with mobile phones and <0 tracking systems which makes it easier
and faster to cater to our customer+s re'uirement. >hen you call for a cab, the
nearest available cab is tracked and sent to you, saving you time and earning us
a customer.
Fou can book a cab online or over the phone. %eatures like 4ive Chat will
connect you straight to our customer care executive, who is always there to
answer your 'ueries and make your "ourney hassle free.
#ll our cabs are driven by experienced Trilingual drivers ac'uainted with all the
three dialects of @I=!I, M#7#T@I and 9=<4I@, making your "ourney
comfortable %or we not only driven by your needs but also by the
clean fuel we use.
RENTAL CAR
0rofessionalism with a human touch.
6uilding on this philosophy, Traveltime has carved a niche+ for itself as a
reputed mass transport company in 0une. #pt use of technology, optimum and
wise utili(ation of human resources, combined with an extra large fleet of
vehicles, have helped us reach the pinnacle.
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9'uipped with an arsenal of comfort in various segments like5
mall Car egment
Mid i(e Car egment
0remium Car egment
@igh Capacity Vehicle
4uxury Car egment
*niformed drivers will greet you politely and hold the door open or load your
luggage into the taxi. The driver will drive safely and smoothly while you read
the local newspaper ensuring you arrive at your destination refreshed and
relaxed. >hether it is a business trip or pleasure, your Traveltime Cab ervice
can provide local information on hotels, restaurants, the theatre or famous
tourist spots.
The driver is knowledgeable on the local roads and will always use their
expertise to avoid traffic congestion where possible and strive to deliver you to
your destination on time.
Bus Service
>e provide buses to most of the corporate in 0une. >e have a well trained staff
to take care of the backKoffice operations, like taking the dump data, chalking
the route of each bus to target the pickup of maximum employees. This makes
our service cost effective and time effective for our clients. #ll our Corporate
6uses are well maintained with neat and clean interiors and are e'uipped with
<0 tracking system, which enables us to track the vehicles in real time.
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>e also provide buses for company events and outings.
1ur %leet of 6uses consists of ,E eater
-; eater
-E eater
.- eater
/A eater
/H seater
Traveltime has been proudly providing bus service to 0uneites to travel
anywhere across India for the last ,; years.
ACTI%ITIES O& THE COMPAN7
#t Traveltime we believe that Training is crucial for organi(ational development
and success. It is extremely fruitful to both employers and employees of an
organi(ation. Leeping this is mind, we conduct various activities for our
customer service executives, office staff, corporate staff, and also our drivers.
These activities are designed in a way to help them better understand
themselves, you, their work and also the business.
%ollowing are some of the activities we en"oy as a family.
Communication kills for our Customer Care 9xecutives to help them
understand and serve you better.

7oad afety for our team of drivers to help them understand how to be
better drivers and responsible citi(ens.

wine %lu #wareness and Immuni(ation 0rogrammed for all staff


members.

Ass2ran'e S'/e+e - C/ala3 Mala3


This is a scheme started by Traveltime to make our drivers the owners of
their destiny.
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CHAPTER 9
DATA COLLECTED
:
DATA ANAL7SIS
MARGINAL PRO&ITA#ILIT7 STATEMENT &OR E;ISTING
#USINESS (1 #USES< 9=>>> ?MS, PER ANNUM!
PARTICULARS T1T#4&7
.
097
LM&7.
@ire Charges 2ales3 M7s..A per
km.
,//AAAA .A.AAA
%ARIA#LE COST
l. Cost of diesel ;-HBAA ,,.A.B
-.cost of oil ,B/,E A..B/
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.. 7epairs N maintenance 2/AO3 -/AAA A.;AA
/. Tyre cost ,.-AAA -.E;A
;. 6usiness promotion cost 2.AO3 -EAA A.A;D
D. 1ther office cost 2-AO3 E-A A.A,;
E.!epreciation ,-/AAA -.;B.
TOTAL %ARIA#LE COST =41@4A 1A,46@
A.AAA
CONTRI#UTION @>=4@4 16,@A9
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MARGINAL PRO&ITA#ILIT7 STATEMENT &OR E;ISTING #USINESS
(6> #USES< B@>>>> ?MS, PER ANNUM!
PARTICULARS
Total&7. 097
LM&7.
@ire Charges 2ales3 M7s..A per
km.
-BBAAAAA .A.AAA
%ARIA#LE COST
l.Cost of diesel ,A;HDAAA ,,.A.B
-.cost of oil .DBD/A A..B/
.. 7epairs N maintenance 2/AO3 /BAAAA A.;AA
/ Tyre cost -D/AAAA -.E;A
;.6usiness promotion cost2.AO3 ;/AAA A.A;D
D.Ather office cost2-AO3 ,//AA A.A,;
E.!epreciation -/BAAAA -.;B.
TOTAL %ARIA#LE COST 1@@44>9> 1A,46@
CONTRI#UTION 161@@B@> 16,@A9
LESS" &I;ED COST
l.7T1 taxes D/AAAA
-.!rivers alary ,H-AAAA
.. 7epairs N maintenance E-AAAA
/. Insurance D/AAAA
;. #dmin. 9xpenses ,-AAAAA
D. 6usiness 0romotion 9xps. ,-DAAA
E. 1ther office cost ;EDAA 54>4@>>
ANAL7SIS O& E;ISTING #USINESS O& THE COMPAN7
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PARTICULARS REMAR?S
1, P, %, RATIO
C1=T7I6*TI1=
)))))))))))))))x ,AA
#49
,-,DDHDA
)))))))))))))) x ,AA 96,65
-BBAAAAA
6, #REA? E%EN POINT
a! IN RUPEES
%IC9! C1T
))))))))))))))))x
0. V. 7#TI1
;.A.DAA
)))))))))))))))x RS,16556B>>
/-.-;O
*! IN ?ILOMITERS
%IC9! C1T
)))))))))))))))x
C1=T7I6*TI1= 097 .LM.
;.A.DAA
)))))))))))))))))))))))))))) 91=9@4 ?MS
,-.DE/
4, MARGIN O& SA&ET7
a! IN PUPEES
#49
)
6.9.0273
-BBAAAAA
)
,-;;-HAA RS,1@69A1>>
IN&ERENCE &OR E;ISTING 6> #USES
1. P, %, RATIO
The profit volume ratio for the existing -A buses is /-.-;O.
2. #REA? E%EN POINT
The break) even point, i.e. 20oint of no profit no loss3, is in terms of rupees
is 7s ,-;;-HAA.
The break) even points in terms of units 2kms3 is /,B/D.kms.
4, MARGIN O& SA&ET7
The company has achieved its margin of safety in units i.e, ;/,;.Ekms.
Corresponding to the unites the margin of safety in rupees is 7s. ,D-/E,AA .
9, PRO&IT PERCENTAGE
ince the margin of safety of the company is 7s ,D-/E,AA , therefore the
company has achieved its profit at -..B.O.
Page | 36
MARGINAL PRO&ITA#ILIT7 STATEMENT &OR PROPOSED
ADDITIONAL #USINESS (1> #USES< 6==>>> ?MS, PER
ANNUM3
PARTICULARS TOTALCR
S,
PER
?MCRS,
Hire C/arges (Sales! DRs,6> 0er
3+,
;EDAAAA -A.AAA
%ARIA#LE COST
l. Cost of diesel .,EBH// ,,.A.B
-.Cost of oil ,,A;H- A..B/
.. 7epairs N maintenance 2/AO3 ,//AAA A.;
/.Tyre cost EH-AAA -.E;
;.6usiness 0romotion cost2.AO3 ,D,-B A.A;D
D.Ather office cost2-AO3 /.-A A.A,;
E.!epreciation E/.HA/ -.;B.
TOTAL %ARIA#LE COST 9B=B=== 1A,46@
CONTRI#UTION AA>116 1@,>99
Page | 37
IN&ERENCE &OR 1> #USES
#s fixed cost is a period cost it remains fixed for any level of business activity.
1nce fixed cost is recovered, it need not to be recovered from the additional
business. %ixed cost is a non recurring cost, it would not incur again N again in
the business. @ence for the purpose of analysis of the additional business and
for decision making only variable cost should be considered as it is to be
recovered from the contribution from new additional business
COM#INED MARGINAL PRO&ITA#ILIT7 STATEMENT &OR
E;ISTING : NEE #USINESS (6> #USES< B@>>>> ?MS, PER ANNUM!
(1> #USES< 6==>>> ?MS, PER ANNUM ADDINAL #USINES
PARTICULARS E;ISTINGCR
S,
ADDITIONC
RS
TOTALC
RS
Hire
C/arges(Sales!DRs,4>:Rs,6>
0C3+,
-BBAAAAA ;EDAAAA ./;DAAAA
%ARIA#LE COST
l. Cost of diesel ,A;HDAAA .,EBH// ,.EE/H//
-.Cost of oil .DBD/A ,,A;H- /EH-.-
.. 7epairs N maintenance 2/AO3 /BAAAA ,//AAA D-/AAA
/.Tyre cost -D/AAAA EH-AAA ./.-AAA
;.6usiness promotion cost2.AO3 ;/AAA ,D,-B EA,-B
D.Ather office cost2-AO3 ,//AA /.-A ,BE-A
E.!epreciation -/BAAAA E/.HA/ .--.HA/
TOTAL %ARIA#LE COST 1@@44>9> 9B=B=== 61@66B6=
CONTRI#UTION 161@@B@> AA>116 16B4A>A6
Page | 38
LESS " &I;ED COST
l. 7T1 taxes D/AAAA
-.!rivers alary ,H-AAAA
.. 7epairs N Maintenance E-AAAA
/. Insurance D/AAAA
;. #dmin. 9xpenses ,-AAAAA
D. 6usiness 0romotion 9xps. ,-DAAA
E. 1ther 1ffice Cost ;EAAA
TOTAL &I;ED COST
54>4@>>
PRO&IT A@449A6
Page | 39
ANAL7SIS O& TOTAL E;ISTING : NEE #USINESS O& THE
COMPAN7
PARTICULARS REMAR?S
1, P, %, RATIO
C1=T7I6*TI1=
))))))))))))x ,AA
#49
,-H.EAE-
))))))) x ,AA
4A,94
./;DAAAA
6, #REA? E%EN POINT
a! IN RUPEES
%IC9! C1T
))))))))))))))))))
0. V. 7#TI1
;.A.DAA
))))))))))))))
RS,191@B4=6
.E./.O
*! IN ?ILOMITERS
%IC9! C1T
Page | 40
)))))))))))))))))))))))))
C1=T7I6*TI1= 097 LM
;.A.DAA 511@49 ?MS
))))))))))))))))))))))))))
,A..DD
4, MARGIN O& SA&ET7
a! IN RU PEES
#CT*#4 #49 ) 6.9.0. #49
./;DAAAA
) ,/,DH.B- RS 6>4B>@1=
*! IN ?IL>M1TERS
#CT*#4 #49 LM ) 6.9.0
LM
,-/BAAA
)
;,,D./ A4@4@@ ?MS,
9, PRO&IT PERCENTAGE
071%IT
))))))))))))))) C,AA
#49
ED../E-
))))))))))))))))))
C,AA 66,>BF
./;DAAAA
Page | 41
COMPARATI%E ANAL7SIS O& DATA
PARTICULARS E;ISTING RE%ISED In'rease De'rease
,, P, %, RATIO /-.-;O .E./. /.B-
-. #REA? E%EN POINT
a3 I= 7*099 7.,-;;-HAA 7.,/,DH.B- 7s.,D,D/B-
b3 I= LI41MIT97 /,B/D. LM. ;,,D./ LM H.,E, kms
4, MARGIN O& SA&ET7
a3 I= 7*099 7.,D-/E,AA 7.-A.HAD,B 7s./,/.;,B
b3 I= LI41MIT97 ;/,;.E LM E.D.DDLM. ,H/B-H LM
9,PRPO&IT PERCENTAGE -..B.O --.AHO ,.E/O
Page | 42
IN&ERENCE &OR COMPARITI%E TA#LE
1. P, %, RATIO
!ue to lesser margin i.e. contribution from the additional new business the
existing 0.V. 7atio /-.-; O has been reduced to .E./.O . The 0.V.7. reduced
by /.B-O.
6, #REA? E%EN POINT
!ue to reduction in contribution per unit and reduction in 0V7, 690 has
been ,/,DH.B- i. e. by 7s.,D,D/B- and also by H.,E, Lms.
4, MARGIN O& SA&ET7
The margin of safety also increased by 7s.,//.;,B due to increase in the
sale as new proposal result into increase in the turnover of 7s.;EDAAAA.
9, PRO&IT PERCENTAGE
0ercentage of profit decreased by ,.E/O because margin i.e. contribution
from additional business is very less which affect the overall profitability of
the business.
5, AMOUNT O& PRO&IT
The amount of profit has increased by 7s.EEA,,- because whatever
contribution earned from additional business directly result into
increase in the profit of the company as fixed cost is already recovered
from contribution of existing business.
Page | 43
CHAPTER 5
SUGGESTION :
CONCLUSION
Page | 44
SUGGESTION
It is observed that the contribution per km. shall be decreased, if the new
proposal for ,A buses on aturday N unday. It also result into decease in the
0.V. 7atio of the company. The 6.9.0. hall increased .
The recommendation given by the #ccounts department is based on the basis of
#bsorption Cost sheet. 6ut it is essential to analy(e the proposal on the basis of
Marginal cost Techni'ue because the fixed costs once recovered from the
contribution of existing business need not to be recovered from the contribution
earned from the additional new business.
The recommendation from 6usiness 0romotion !epartment is merely states that
the business will increase without disturbing the existing business. The
department has not made any calculation to prove or support it+s
recommendation.
I would like recommend the management of the company that even though the
0.V. 7atio and contribution decreases on accepting the offer for new additional
business from the educational institute the proposal should be #CC90T9!.
#s fixed cost is a period cost it remains fixed for any level of business activity.
1nce fixed cost is recovered, it need not to be recovered from the additional
business. %ixed cost is a non recurring cost, it would not incur again N again in
the business. The #ccounts !epartment had analy(ed the proposal on the basis
of total cost per km. which is 7s.--.B;. This analysis shall not proved useful for
decision making because fixed cost once recovered need not to recover again
from the contribution of additional business. @ence for the purpose of analysis
of the additional business and for decision making only variable cost should be
considered as it is to be recovered from the contribution from new additional
business.
Page | 45
%rom analysis of proposed additional business it is clear that the proposed
business shall give hire charges of 7s.-A and variable cost per km. is 7s.,E..-.
The proposed business shall give contribution of 7s.-.DB per km. This
contribution directly results into increase in the profit of the company because
fixed cost is already recovered from the existing business of the company.
@ence total contribution from new business of 7s. EEA,,-&) helps to increase
the profit of the company by 7s.EEA,,-&)
The company can increase it+s profit by 7s.EEA,-- without disturbing existing
business . @ence the proposal should be #CC90T9!.
Page | 46
CONCLUSION
#t the conclusion I would like conclude that once the fixed
cost is recovered , then it need not to be recovered from the
contribution of additional sales. In short fixed cost is recovered
from 690 sales and it not to recovered from contribution of
sales above 690 sales i.e. margin of safety sales. 1nly variable
costs are to be recovered from the contribution of the sales
more than 690 sales. @ence whenever selling price is more
than variable cost it always contribute to the profit of the
company.
In case of this company, the additional business proposal gives
hire charges of 7s.-A per km. and the variable cost to run the
buses for this additional business is only 7s. ,E..-. It means
this proposal give contribution of 7s.-.D- per km. The total
proposed additional running kms are estimated -BBAAA which
give total contribution of 7s.EEA,,-, will increase the profit of
the company by 7s.EEA,,-&) as the 690 sales limit is already
crossed by the company and fixed cost is already recovered by
the company from the contribution earned from 690 sales.
#t last I conclude that Marginal Cost Techni'ue is very useful
techni'ue for the management to analy(e the data in a
effective and useful manner and to take a correct decision.
Page | 47
APPENDI;
TA#LE NO -1
GRAPH NO -1
IN&ERENCE"
In the above graph +tc+ is the total cost line and +sp+ is the selling price line ,and
+fc+ is the fixed cost which remains same at all the levels of the output, and +vc+
is the variable cost which continuously changing according to the level of the
output.
#t /-A,AAA level of the output, total cost is intersecting the selling price and the
company is achieving its break)even Kpoint 26903. #fter the 690 the total cost
line is below the selling price which shows that the company is earning profit.
The Marginal 1f afety of the company is achieved from the /-A,AAA level till
//A,AAA level of the output respectively,
TA#LE NO-6
GRAPH NO-6
IN&ERENCE"
In the above graph +tc+ is the total cost line and +sp+ is the selling price line ,and
+fc+ is the fixed cost which remains same at all the levels of the output, and +vc+
is the variable cost which continuously changing according to the level of the
output.
#t ;AA,AAA level of the output, total cost is intersecting the selling price and the
company is achieving its break)even Kpoint 26903. #fter the 690 the total cost
line is below the selling price which shows that the company is earning profit.
The Marginal 1f afety of the company is achieved from the ;AA,AAA level till
;/A,AAA level of the output res
#I#LOGRAPH7
RE&ERENCE #OO?S"
,3 IMarginal CostingJ by , %.C.4#>79=C9,M.C
-J#dvance cost accountingJ . M.<.0#TL#7
.3J Cost accountingJ . P#M@I!.9L#=!#7I
/3 ICost accountingJ . 79Q# !#7<#@I
;3>>>.>ekipidia.com

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