Problems on Marginal Costing

1. The following figures are extracted from the books of a manufacturing concern for the year 19992000 Direct Materials Direct Labour Fixed Overheads Variable Overheads Sales Calculate: a) P/V Ratio b) Break Even Point c) What will be the effect on BEP of an increase of 10% in: i) fixed expenses and ii) variable expenses. 2. S Ltd., a multi-product company, furnishes the following data relating to the year 2000. Ist Half of The year Sales Total Cost Rs.45000 Rs.40000 IInd Half of the year Rs.50000 Rs.43000 = Rs.205000 = Rs.75000 = Rs.60000 = Rs.100000 = Rs.500000

Assuming there is no change in prices and variable costs and that the fixed expenses are incurred equally in two half year periods, calculate for the year 2000: a) b) c) d) 3. P/V ratio Fixed Expenses Break Even Point Margin of Safety The skyrock Limited produces and sells three types of products P, Q and R. The management committee has decided to discontinue the production of Q since there is not much profit in it. From the following set of information, find out the profitability of the products and give your short comments on the decision of the management. Selling Price Per Unit (Rs.) 300 275 305 Direct Material Per Unit (Rs.) 60 30 70 Deptt. A 20 20 12 DW per unit Deptt. B 15 20 10 Deptt. C 10 10 20

Product P Q R

The absorption rates of overhead on Direct wages are: Overhead Variable Fixed 4. Deptt A 150% 200% Deptt. B 120% 240% Deptt. C 200% 150%

Two manufacturing companies have decided to merge into one company. The operating details of two companies are as follows: Company I 90 Company II 60

Particulars %age of capacity Utilisation

Sales (Rs.) Variable Costs (Rs.) Fixed Costs (Rs.)

5,40,00,000 3,96,00,000 80,00,000

3,00,00,000 2,25,00,000 50,00,000

Assuming that these two companies merge into one, determine: a) Te break-even sales of the merged company and the capacity utilization at the break-even level. b) The profitability of the merged company at the 80% level of capacity utilization. c) The turnover of the merged company required to earn a profit of Rs.75,00,000 and 5. Calcutta Company Limited manufactures and sells four types of products under the brand names Ace, Utility, Luxury and Supreme. The sales mix in value comprises of the following: Ace 33 1/3% Utility 41 2/3% Luxury 16 2/3% Supreme 8 1/3%

Brand Percentage

The total budgeted sale(100%) are Rs.600000 per month. The operating costs are: Ace Utility Luxury Supreme 60% of sales 68% of sales 80% of sales 40% of sales

The fixed costs are Rs.159000/- per month. Calculate break-even point of the products on an overall basis. 6. PQ Ld. has been offered a choice to buy a machine between A and B. You are required to compute: a) Break Even Point for each of the machines. b) Level of sales at which both machines earn equal profits. c) Range of sales at which one is more profitable than the other. Relevant data are given as: Particulars Annual Output in units Fixed Cost (Rs.) Profit at the above level of production Machine A 10000 30000 30000 Machine B 10000 16000 24000

Market price of the product is expected to be Rs.10 per unit. 7.Comment on the relative profitability

of the following two products and calculate B.E.P. :

Production cost per unit Product A Product B Material Rs. 200 Rs. 150 Wages 100 200 Fixed Overhead 350 100 Variable Overhead 150 200 Profit 200 350 _________ __________ 1000