Marginal Costing 6 .

27
ILIJUSTRATIONS
(l) Absorption and Marginal Costing
Illustration I
The selling price -0f a particular product is Rs. 100 and the marginal cost is
Rs. 65. During the 1nonth of .April, 800 units were produced of ·w hich 500 were
sold, There was no opening stock at the conunencement .of the 1nonth. Fixed
costs amounted to Rs. 18,000. Provide a statement using (a) Marginal costing'
(b) Absorption costing, sho~wing the closing stock valuation and the profit earned
under each principle. /Madras, M.Coni., April 1988/
Illustration 2
The following figures are extracted fro1n the books of Vijay Irons Ltd. for the
years 1989 and 1990 whose capacity is 10,000 irons p.a) .
per unit
Rs.
Direct material 3.50
Direct labour 0.50 /
Fixed overhead 2.00
Selling price 8.00
Production in 1989 was 10,000 units and in 1990 also it was 10,000 units. Sales
was 8,000 units in 1989 and 12,000 units in 1990. ,-
(2) Break even Analys is ( or) Cost Volum e Profit Analysis
(a) Compu tation of B.E.P.
ruustration 3
The fixed expens es of an industrial concer n amoun t to Rs. 1,80,00 0. Its variabl e
cost per unit is Rs. 29 and selling price is Rs. 44 per unit. Calcul ate the break even
point.
/Madras, B.Com., March 1987/
Illustration 4
(a) Calculate break even point from the following :
Sales 1,000 units at Rs. 10 each Rs. l 0,000
Variable cost - Rs. 6 per unit
Fixed cost - Rs. 8.,000
(b) If the sel1ing price is reduced to Rs. 9~what is the new break even point?
{Madras, B.Co,n., Sep. 1987/
 - 1.'\..S. L.q.,vvv
Illustration 5
A co1npany is considering expansion. Fixed costs arnount to Rs . 4,2 0,000 and
are expected to increase by Rs. l 925,000 when plant expansion is completed. T he
present p lant capacity is 80,000 units a year. Capac ity will increase by 50% with
the expansion. Variable costs, currently Rs. 6.80 per unit, are expected to go dovm
by Re. 0 .40 per unit with the expansion. The current selling price is Rs. 16 per unit
and is expected to remain the same under each alternative.
What are the break even points under either alternative? Which alternative is
better and why.
/Madras, M.Com., Jl,fay 1989/
 M anagement /\ccount in ~
Illustration 6 (Composite BEP)
Raviraj Ltd. manufactures and sells four types of products under the brand
nam~s of A, B. C and D. The sales mix in value compr ise s 33 1 '3~1o,4 12 ·3~,o, l 6 2 1

°~
3
and 8 1/ 3~lo of products A, B , C and D respectively. The total budgeted sales
( I 00°/4) are Rs. 60,000 per month.
Operating costs are
Vahable cost: . ·
Product A 60% of selling price
B 68% of selling price
C 80% of selling price
D 40%>of selling price
Fixed cost : Rs. 14,700 per month
Calculate the break even point for the products on an overall basis and also
the B.E. Sales of individual products. Show the proof f~r your answer.
/Madra.~. R.rnm_ ITrP) ,U no Jnni . U r '.rn-H ~~- 10001
Illustration 7 (Cost BEP)
Kovalan & Co., Ltd. is considerin g the purchase of a machine. The vendor
has offered two 1nodels -- A and B , The following is the relevant information:
A B
Rs. Rs.
Fixed cost p.a. 40000 1,00,000
'
Variable cost of operating
. . the machine -per unit .. .. .. • -8 5 • • • . · . __,_- -·---·· .. -
Ascertain the ' cost break even point' for the 1nachines ®d explain the
productio n range in which each of the machines is b'<tttr.
6.34 Mana0,eme
....., nt Acco untin0,
......

(2) Cost Volume Profit Analysis

(b) Computation of Sundry Items
Illustration 8
Vasanth Ltd. presents the fo1lowing results for one year. Calculate the P/V
Ratio, BEP and Margin of Safety.
Rs.
Sales 2,00,000
Variable costs J ,20,000

Fixed cost 50,000

Net profit 30,000
{M"dras, MC011i., Sep. 1987/
 'vi a rg in a r ( () ', t in;'
- - ~ -- -- -- -- -- -- -- -- - -- - - -- --
.. Illu strati on 9
Fro m tht: f oJ IO \ '- 1l1!!.... infonnat10 n . ca k ulate
L 1J B r L" .1 k - t: , l. n pn 11 1I
profit of Rs . 60. 000 , per ,ear.
(bJ t\ un1bcr l >f unit !\ that mu \ t be ~old ro ecJrn a
dni ts that muc ; t be \ old to earn a net inco me of I (J0 o on "alc5 .
(c) Nu mb er nf
Sale~ pn ct: R, 20 per uni t
Van,1hk c. ( ,<:, t R" 14 perun1t
Fix~d cost R" 79 . ~00
/ t/ad rllJ, JI. Coin. (J( ~E) Oct. I 9R9 /
 .J • . / V , \.IV V

Illustration 10
Fr om th e following in fo nn
at io n relat ing to Palani Bros . Ltd. , yo
u ar e re qu ire d
to find ou
· · {a) P/Vt Ratio (b) Br ea k
ev en point (c) Profit (d ) Margi
n of safety {e) V ol um e o f
sales to ean1 pr of it of Rs. 6.,
000.
Rs.
Total fixed co sts 4500
Total va ria bl e co st
7,500
Total sa le s
/Madras, 1st M.Com. Nov. 15 .,000
20 06 ; Nov. 2005; BBA (O
Ap ril 20 06 ; B.Com. Oct. ld) Nov. 20 06 ; B. Co m
2000; M.Com. M ay 19 95 .(C S)
(I CE )/
 )U '1/o

Illustration 11
ul at e:
Fro1n th e fol lo w in g da ta ca lc
st an d (c ) Profit.
(a) P N Ratio; (b) Variable co
Rs.
Sales 80,000
Fi xe d expenses 15000
'
B re ak ev en po in t 50 00
,0
 6.38 Managen1e11t Accountin g
· · lllu~tr.ition 12
The P/V Ratio of a finn dealing in precision instruments is 50% and 1nargin of

You are required to work-out break even point and the net profit if the sales
\ olume is Rs. 50,00.000. If 25% of variable cost is labour cost, what will be the
ctTect on BEP and profit vvhen labour efficiency decreases by 5%.
[Madras, M.Com., April 1989/ -
 7.J

Illus trat ion 13

of safety ratio of
Ope ratio ns of Jaya nth Co. Ltd. in 1985 disc lose d a 1nargin
20% and a cont ribu tion n1argin ratio of 60% .
fixed cost s to be
(a) Calc ulat e the net incon1e for 1985 assu ming the
(i) Rs. 60,0 00 and (ii) Rs. 24,000.
tion (a).
(b) Pres ent inco n1e staten1ent to prov e your answ er to ques
[/Jlladras, B.Co111. (ICE) Costing, May 2001 ;
Madras, A,f.Co111., Sep. 1986 ]
~ :argina I Costing 6 41
- - - - - - - - - - - - - - - - - - ----=-~ ·
Illustration 14
Two businesses S.V.P. Ltd. and T.R.R. Ltd ., sell the smne type of product in
the same type of market.
Their budgeted Profit and Loss Accounts for the coming year are as follows:
s VP ltd I T.R.R. Ltd
Rs. . Rs.
Sales l -50,000 ; 1,50,000
I

Less: Variable cost 1,20,000 1,00,000

Fixed cost 15,J)OO 1,3-5,000 : 35,000 1~35,000
Budgeted net profit 15,000 15,000

You are required to:

(a) Calculate break-even point of each business
(b) Calculate the sales volume at which each business will ean1 Rs. -5 ,000
profit.
( c) State which business is likely to earn greater profit in conditions of:
(i) heavy den1and for the product
(ii) low de1nand for the produc!
Briefly give your reason~.
.~. R.Com Nov 2004, B.Com. (ICE) Oct. 2001; B.Com.. Oct.1001 (Double
Illustration 15
The follow ing inforn1ation is obtai ned fron1 Gopu & Co. , .for the year endin
g
31st Marc h 1998:
Sales Rs. 2,00,000. Variable cost Rs. 1,50,0 00. Fixed cost 30,000.
You are requi red to calcu late the follow ing
(a) Prese nt PN Ratio , Break even point and 1narg in of safety
(b) Revi :-J!d P/V Ratio , BEP and marg in of safety in each of the follow
ing
case~:
( 1) 25% incre ase in sellin g price
(2) 10% decre ase in sellin g price
(3) 20% incre ase in fixed cost
( 4) I 0~'o decre ase in fixed cost
(5) I 0% incre ase in varia ble cost
(6) 10% decre ase in varia ble cost
(7) 10%> incre ase in sellin g price accon 1pani ed by I 0% decre ase in
varia ble cost.
(8) l O°lo decre ase in sellin g price accm npan ied by I 0% increa se in
varia ble cost.
 6.44 Manage1nent Accounting
Illustration 16
A firn1 has Rs. 10,00,000 invested in its plant and sets a goal of 15% annual
rerun1 on investn1ent.
Fixed cost in the factory presently amount to Rs. 4,00,000 per year and variable
costs an1ount to Rs. 15 per unit produced. In the past year the finn produced
50,000 units and sold them at Rs. 25 each and earned a profit ofRs. 1,00,000. How
can the rnanagen1ent achieve their target profit goal by varying different variables
like (a) Fixed cost (b) variable costs ( c) ·, ;)(~;.{!11:y su!a and ( d) increasing the price
per unit?
{Madras, M.Com., April 1988/
Marginal Costing
6.45
(2-C) Cost volume profit analysis
\\'hen two consecutive periods figures are given
Illustration 17
The sales turnover and profit during two years were as follows :
Sales
Pro..fz.i l
1991
Rs.
1,4<> ~ -
R~
15,000
rl I

1992 I 1,60,000 20,000

I 1

C'alculate :· '
(a) P/V Ratio
(h) Break-even point
•
(c) Sales required to em.11 a profit of Rs. 40,000
(d) Fixed expenses and
( e) Profit \vhen sales are It.')_ 120,000
[Madras, B.Com., April 2001 (O/d);
ftt/adras, B.Cont. C & 111, lJJarch 1997; ~~arch 1996/
Illustration 18
A.G. Ltd. furnished you the following related to the year 1996.
First half of Second half of
the year the year
Rs. Rs.
Sales 45,000 50000
'
Total cost 40,000 43,000
Assuming that there is no change in prices and variable cost and that the
fixed expenses are incurred equally in the 2 half year periods, calculate for the
year 1996:
(a) The profit volume ratio
(b) Fixed expenses
( c) Break even sales and
...

(d) % of margin of safety.

,(
6.--f S M c1 na ~-~l. rn c 111 /\ ccou n t iw,
Illustration 19
Fron1 the particulars give n belo w calcu late:
(a) Break even point
(b) Prof it or loss when sales are Rs. 12,0 00 and
(c) Sales requ ired to earn a prof it of Rs. 5,00 0
Sale s Profit/Lo ss (-)
Rs. Rs.
Perio d l 10,000 -500
2 14,000 1,500
. om., Sep. 1990 /
 Marginal Costing
--
(2-D) Cost volun1e profit analysis
6.49

When current profits have to be n1aintained iu future

Illustratio n 20
Th~ follo\ving details relate to product X:
Rs. Rs.
'
Selling p1ice 1,200
Costs :
iv1aterials 600
Labow· 150
Variable overheads 50
Fixed overheads 100 ~
Profit 300
t" During the forthcoming year it is expected that n1aterial costs will increase by
I 0%, wages by 33 1/ 3o/o, and other variable costs by 20%. You are required to
calculate the percentage increase in selling price of X \Vhich ~ ,ill maintain the
firm 's contribution/sales' ratio. , ·
fl\1fndra .. _ ~1-rnmJT rF) .l \.tlnu J