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Marginal Costing Formulae
• Sales – Variable Cost = Contribution
• Contribution – Fixed Cost = Profit
• Sales – Variable Cost = Fixed Cost + Profit
• Profit Volume Ratio = Contribution / Sales
• Contribution = Sales * PV Ratio
• Sales = Contribution / PV Ratio
• BEP (in units) = Fixed Cost / Contribution per unit
• BEP (in rupees) = Fixed Cost / Contribution/Sales
• BEP (in rupees) = Fixed Cost / PV ratio
• Required Sales (in rupees) = Fixed Cost + Profit / PV ratio
• Required Sales (in units) = Fixed Cost + Profit / Contribution per unit
• Actual Sales = Fixed Cost + Profit / PV ratio
• Margin of safety (in rupees) = Actual Sales – BEP Sales
• Margin of safety (in units) = Actual Sales (units) – BEP Sales (units)
• Profit = Margin of safety * PV ratio
Ascertaining Missing figures
• CONTRIBUTION
• = Sales – Variable Cost
• = Fixed Cost + Profit
• = Sales * PV Ratio
• = (BE Sales in units * Contribution per units) + Profit
• = (BE Sales in value * PVR ) + Profit
• = Fixed Cost + (MS in units * Contribution per unit)
• = Fixed Cost + (MS in value * PVR)
• = Profit / MS in %
• = Fixed Cost / BE sales in%
• PROFIT VOLUME RATIO (PVR)
• = Sales - Variable Cost / Sales * 100
• = Contribution / Sales *100
• = Fixed Cost + Profit / Sales *100
• = Fixed Cost / BE Sales in value * 100
• = Fixed Cost / BE Sales in units *100 / Selling price per unit
• = Profit / Margin of safety in value *100
• = Profit / Margin of safety in units *100 / Selling price per unit
• = Change in profit / Change in sales *100
• = 100 – Variable cost to sales ratio
Ascertaining Missing figures
• BE SALES IN UNITS
• = Fixed Cost / Contribution per unit
• = BE Sales / Selling price
• = Fixed Cost / S.P. per unit – Variable cost P.U
• = Actual Sales per unit – Margin of safety in units
•
• BE SALES IN VALUE
• = Fixed Cost / PVR
• = Actual Sales in value – Margin of safety in value
• = Fixed Cost / Contribution per unit * Selling price per unit
• = BE Sales in units * Selling price per unit
• = Fixed Cost / 1- Variable Cost / Sales
• = Fixed Cost / % of Contribution to sales
•
• BE SALES IN % OF SALES
• = Fixed Cost / Contribution *100
• = BE Sales / Actual Sales *100
• = 100 – margin of safety (in %)
Ascertaining Missing figures
• MARGIN OF SAFETY IN UNITS
• = Profit / Contribution per unit
• = Actual Sales in units – BE Sales in units
• MARGIN OF SAFETY IN VALUE
• = Profit / PV Ratio
• = Actual Sales in value – BE Sales in value
• = Profit / Contribution per unit * Selling price per unit
• = Margin of Safety in units * Selling price per unit
• PROFIT
• = Sales – Total Cost
• = Sales – (Variable Cost + Fixed Cost)
• = Contribution – Fixed Cost
• = Margin of Safety in Value * PVR
• = Margin of Safety (% of sales) * Total Contribution
• = (Margin of Safety in % of Sales * Actual Sales) * PVR
• SALES
• = Total Cost + Profit
• = Variable Cost + Fixed Cost + Profit
• = Variable Cost + Contribution
• = Contribution / PV ratio * 100
• = BE Sales + Margin of Safety
QUESTION 1
The Acme Company produces and sells one
product. The revenue and cost structure of the
product is given below:
Particulars Amount in Rs.
C 4
P.V .Ratio 100 100 40%
S 10
Fixed Expenses 1,00,000
B. E. P. in A m o u n t 2,50,000
P / V Ratio 40%
QUESTION 2
Calculate break even point on the basis of the
following information supplied by a manufacturing
firm:
PARTICULARS AMOUNT IN
Rs.
ESTIMATED SALES 10,00,000
C S V 180 100 80
F P 50,00,000 50,00,000 1,00,00,000
Re quired Sales to earn same amount of Pr ofit 1,25,000 cycles
C 80 80
C S V 160 100 60
1,00,00,000
cycles 1,66,667
60
QUESTION 5
PARTICULARS AMOUN T
Given the following figures: (Rs.)
FIXED COSTS 16,000
SELLING PRICE PER 8
UNIT
F 21, 000
N e w B. E . P. inUnits 7,000units
Effect of decrease in FCixed C3ost by 4,000 , Now Fixed
Expenses =16,000 -4,000 = 12,000
F 12,000
New B. E. P.inUnits 4,000units
C 3
Contd.
Effect of increase in variable cost by 20%
V.C. = 5 + 1 = 6 , New C will be 8 – 6 = 2
F 16,000
New B. E. P.inUnits 8,000units
C 2
QUESTION 6
The total cost and profits during two period were as follows:
PARTICULARS PERIOD –I PERIOD – II
AMOUNT AMOUNT
Calculate:
i. P/V Ratio
ii. Break Even Sales
iii. Sales required to earn a profit of 1,25,000 Rs.
iv. Profit earned when sales are 3,50,000 Rs.
Answer 6
Change in Pr ofit
P /V Ratio 100 50000 100 20%
Change in Sales 250000
F 50000
B.E.P.Sale 2,50,000
P / V Ra tio 20%
C S V 2010 10
P /V Ratio C / S X 10010 / 20 X 100 50%
F P 20,000 60,00,000
Re quired Sales to earn 60000 amount of Pr ofit
P /V Ratio 50%
80,000
X100 1,60,000
50
Problem
From the following particulars, you are required to calculate :
(i) P/V Ratio
(ii) BEP for sales;
(iii) Margin of Safety;
(iv) Profit when sales are Rs.2,00,000/-
(v) Sales required to earn a profit of Rs.40,000/-
Year Sales Profit
I Rs. 2,40,000 18,000
II Rs. 2,80,000 26,000
You may make possible assumptions. Also evaluate the effect
on II year’s profit of
(a ) 20% decrease in sales quantity.
(b) 20% decrease in sales quantity accompanied by 10%
increase in sales price and reduction of
Rs. 3,500/- in fixed costs
Solution
(1) P/V Ratio
In year 2, additional NP which means additional contribution 8,000
Additional sales 40,000
P/V Ratio 20%
(2) BEP
Fixed cost = Contribution – NP
= (2,40,000 * 20%) – 18,000 48,000 – 18000 30,000
BEP = FC/PV Ratio 30,000/0.20 =1,50,000
(3) Margin of Safety
Year 1 2,40,000 – 1,50,000= 90,000
Year 2 2,80,000 – 1,50,000 =1,30,000
(4) Net Profit
(Contribution*PV Ratio) – Fixed Cost (2,00,000 * 20%) – 30,000= 10,000
OR
Cap Sales 2,00,000
(-) BEP 1,50,000
Margin of Safety 50,000
(-) PV Ratio 20%
NP =10,000
5) Sales Required 100/20 ( 30,000(FC) + 40,000(NP)) = 3,50,000
or BEP 1,50,000
Margin of Safety Req (100/20*40,000) 2,00,000
Sales Required 3,50,000
(6)
a) 20% decrease in sale Qty
Reduction in Contribution & in net profit 20% *(2,80,000*20%)
20% (56,000)
Reduction in Contribution & in net profit Rs.11,200
(b) Revenue Sales ( 2,80,000*80%) *110% 2,46,400
(-) Revenue Cost (2,80,000*80%) * 80% 1,79,200
Revenue contribution 67,200
(-) Revenue Fixed Cost (26,500)
Revenue NP 40,700
(-) Given NP(26,000)
Increase in NP=14,700
ILLUSTRATION
Ǫ A company is producing a single article and sells
at Rs. 30/- each. The Marginal cost of production
is Rs. 24/- each and fixed cost are Rs. 11,000/
per quarter. Find out
1. Profit Volume Ratio
2. Break even sales in value and volume
3. Sales required to earn a profit of Rs. 15,000
4. Profit at sales of R. 5,00,000
5. Margin of safety for (3) and (4) above
Ḁ We know, PV ratio = Contribution/Sales or
= Contrb p.u/Selling P.u
In the given problem, they have given us Selling
price p.u and Marginal cost p.u.