Marginal Costing And Break-even Analysis

1. From the following data, calculate:

I. P/V ratio
II. Profit when sales are Rs. 20,000
III.New break-even point if selling price is reduced by 20%
Fixed expenses

Rs. 4,000

Break-even point

10,000

S.N Maheswori 16.14

2. Gem Plastics make plastic buckets. An analysis of their accounting reveals:
Variable cost per bucket

Rs. 20

Fixed cost

Rs. 50,000 for the year

Capacity

2,000 buckets per year

Selling price per bucket

Rs. 70

Required:
i. Find the break-even point
ii. Find the number of buckets to be sold to get a profit of Rs. 30,000
iii.If the company can manufacture 600 buckets more per year with an additional fixed cost of Rs. 2000,
what should be the selling price to maintain the profit per bucket as at (ii) above.
S.N Maheswori Q. N 16.16 page no A. 450

3. The profit/volume ratio of X Ltd. is 50% and the margin of safety is 40%. You are required to calculate the
net profit if sales volume is Rs. 100,000.
Basistha Q. N 13.41 Page No. T.13.43
4. A company budgets for a production of 150,000 units. The variable cost per unit is Rs. 14 and fixed cost is
Rs. 2 per unit. The company fixes its selling price to fetch a profit of 15% on cost.
(a) What is the break-even point?
(b) What is the profit volume ratio?
(c) If it reduces its selling price by 5%, how the revised selling price affect the break even point and the
profit-volume ratio?

(d) If a profit increase of 10% is desired more than the budget, what should be the sales at the reduced
prices?
S.N Maheswori Q.N 16.22 Page No. A 455
5. From the following data, you are required to calculate the break even point and sales value at this point:
Selling price per unit

Rs. 25

Fixed overheads

Rs. 24,000

Direct material cost per unit

Variable overhead @ 60% on Direct labour

Direct labour cost per unit

Trade discount

4%

If sales are 15% and 20% above the break-even volume, determine the net profits.
S.N Maheswori Q.N 16.31 Page No. A 462
6. S Ltd., a multi-product company, finished the following data relating to the year 2008.
Sales

1st Half of the year

2nd half of the year

Sales

Rs. 45,000

Rs. 50,000

Total Cost

Rs. 40,000

Rs. 43,000

Assuming that there is no change in prices and variable costs and that the fixed expense are incurred
equally in the two half year periods, calculate for the year 2008.
(i) P/V ration

(ii) Fixed expenses

(iii) Break-even sales

(iv) the percentage of margin of safety to total sales.

Basistha Q. N 13.45 Page No. T. 13.45

7. The budgeted income statement by product lines of Multi products Ltd. for 2010 is as follows:
Product A
Sales

Rs. 200,000

Product B
Rs. 500,000

Product C
Rs. 300,000

Variable expenses:
Cost of goods sold

90,000

270,000

150,000

Selling

30,000

90,000

45,000

Overhead

36,000

90,000

54,000

Administrative

16,000

40,000

24,000

Income before Tax

28,000

10,000

27,000

Income Tax @ 40%

11,200

4,000

10,800

Net Income

16,800

6,000

16,200

Fixed expenses:

All products are manufactured in the same facilities under common administrative control. Fixed expenses
are allocated among the products in proportion of their budgeted sales volume.
(a) Compute the budgeted break-even point of the company as a whole, from the data provided.
(b) What would be the effect on Budgeted income if half of the budgeted sales volume of product B were
shifted to product A and C in equal rupee amounts, so that the total budgeted sales in rupees remain
the same.
(c) What would be the effect of the shift in the product mix suggested in (b) above on the budgeted breakeven point of the whole company?
S. N Maheswori Q. N 16.36 Page No. A 466

8. An analysis of S Ltd., cost records give the following information:

Variable Cost ( % of Sales)

Fixed Cost

Direct Material

32.80

Direct Labour

28.40

Factory Overhead

12.60

189,000

Distribution Overhead

4.10

58,400

General Administration Overhead

1.10

66,700

Budgeted sales for the next year Rs. 1,850,000

You are required to determine :
a. Break-even sales value

b. Profit at the budgeted sales volume

c. Profit if the actual sales

(i) drop by 10%
(ii) increase by 5% from the sale.
Basistha Q. N 13.23 Page No. T.13.31

9. The Laila Shoe Company sells five different styles of ladies chappals with identical purchase costs and
selling prices. The company is trying to find out the profitability of opening another store , which will have
the following expenses and revenues:
Per Pair

Annual Fixed Expenses are:

Selling Price

Rs. 30.00

Rent

Rs. 60,00

Variable Cost

19.50

Salaries

200,000

Salesmens Commission

1.50

Advertising

80,000

Total Variable Cost

21.00

Other Fixed expenses 20,000

360,000

Required:
(a) Calculate the annual break-even point in units and in values. Also determine the profit or loss if
35,000 pairs of chappals are sold.
(b) The sales commission are proposed to be discontinued but instead a fixed amount of Rs. 90,000 is to
be incurred in fixed salaries. A reduction in selling price of 5% is also proposed. What will be the
break-even point in units?
(c) It is proposed to pay the store manager 50 paisa per pair as further commission. The selling price is
also proposed to be increased by 5%. What would be the break-even point in units?
(d) Refer to the original data, if the store manager were to be paid 30 paisa commission on each pair of
chappal sold in excess of the break-even point, what would be the stores net profit if 50, 000 pairs
were sold?
Note: Consider each part of the question separately.
S. N Maheswori Q. N 16.43 Page No. A 473

10. IP Ltd. manufactures and sells a product, the selling price and raw material cost of which have remained
unchanged during the past two years. The following are the relevant data:
Particulars

Year 1

Year 2

Quantity sold (kgs.)

100

150

Rs

Rs

Sales Value

20,000

Raw Materials

10,000

Direct Wages

3,000

Factory Overhead

5,000

5,700

Profit

2,000

2,550

During the year 2, direct wages rates increased by 50% but there was saving of Rs. 300 in fixed factory
overheads.
Required:
What quantity (in kgs) the company should have produced and sold in year 2 in order to maintain the same
amount of net profit per kg. as it earned during year 1?
S.N Maheswori Q. N 16.46 Page No. A 476
11. Zenial University conducts a special course on Computer Application for a month during summer. For
this purpose, it invites application from graduates. An entrance test is given to the candidates and based on
the same, a final selection of a hundred candidates is made. The Entrance Test consists of four objective

type examinations and is spread over four days, one examination per day. Each candidate is charged a fee
of Rs. 50 for taking up the entrance test. The following data was gathered for the past two years.
Zenial University

STATEMENT OF NET REVENUE FROM THE ENTRACE TEST

FOR THE COURSE OF COMPUTER APPLICATION
__________________________________________________________________________
2007 (Rs)

2008 (Rs)

100,000

150,000

Valuation

40,000

60,000

Question Booklets

20,000

30,000

Hall Rent at Rs. 2,000 per day

8,000

8,000

Honorarium to Chief Administrator

6,000

6,000

General Administration Expenses

6,000

6,000

Candidates @ Rs. 50 per day)

4,000

6,000

Total Cost

84,000

116,000

Net Revenue

16,000

34,000

Gross Revenue (Fee Collected)

Costs:

Supervision charges (one supervisor for every 100

__________________________________________________________________________
You are require to compute:
a. The budgeted net revenue if 4,000 candidates take up the entrance test in 2009.
b. The break-even numbers of candidates.
c. The number of candidates to be enrolled if the net income desired is Rs. 20,000.
S. N Maheswori Q. N 16.47 Page No. A.477

12. A company present the following cost estimates for three prospective plant A, B and C.
Plant A

Plant B

Plant C

Annual fixed cost (Rs)

60,000

108,000

120,000

Variable cost per unit (Rs)

2.50

2.20

2.10

Annual Capacity (Units)

75,000

120,000

150,000

(i) Calculate the range of output over which each of the plants would be most economical.
(ii) If the sales are steady at 100,000 units per year and the unit selling price is Rs. 4 per unit, what will
be the profits earned with each of the plants? Assume that Plant A can be worked double shift with an
additional expense of 10% in fixed costs and 5% in variable costs of all units.
Basistha Q.N 13.43 Page No. T.13.44

13. A company manufactures and sells a product, the price of which is controlled by the Government. Raw
material required for this product is also made available at a fixed controlled price. The following figures
have been called for the previous two accounting years of the company:
Year I

Year II

Quantity Sold (tonnes)

126,000

144,000

Price per tonne

Rs. 185

Rs. 185

(Rs. In thousands)
Sales Value

23,310

26,640

Raw Materials

11,340

12,960

Direct Labour

1,152

1,872

Factory, Administration and Selling Expenses

9,702

11,232

Profit

756

572

During the year II direct labour rates increased by 8-1/3%. Increases in factory, administration and selling
expenses during the year were Rs. 810,000 on account of factors other than the increased quantities
produced and sold. The managing director desires to know, what quantity if they had produced and sold
would have given the company the same net profit per tonne in Year II as it earned during the year I.
Advise him.
S. N Maheswori Q. N 16.33 Page No. A 464
14. A