MARGINAL COSTING

1.

S Limited furnishes you the following information relating to half year ending 30th September 2009. Fixed expenses Rs. 50,000; Sales Value Rs. 2,00,000; Profit Rs. 50,000 During the second half of the same year the company has projected a loss of Rs. 10,000 Calculate
a)

The P/V Ratio, BEP and Margin of safety for six months ending 30th September 2009. Expected sales volume for second half of the year assuming that selling price and fixed expenses remain unchanged in the second half year also. The Break Even Point and Margin of Safety for the whole year 2009 2010

b)

c)

2. The Reliable Battery Company furnishes the following information: Particulars First Year Second year Sales Profit Rs. 8,10,000 Rs. 21,600 Rs. 10,26,000 Rs. 64,800

From the above you are required to compute the following assuming that the fixed cost remains the same in both the period a) P/V Ratio, Fixed Cost and Break Even Sales b) The amount of Profit or Loss where sales are Rs. 6,48,000 c) The amount of sales required to earn a profit of Rs. 1,08,000 3. You are required to calculate (a) P. V Ratio (b) Margin of Safety (c) Sales (d) Variable Cost from the following figures: Fixed Cost Rs. 12,000; Profit Rs.1,000; Break Even Sales Rs. 60,000

4.

The Asan Industries specializes in the manufacture of small capacity motors. The cost structure of a motor is as under: Material Rs. Rs. 50; Labour Rs. 80; Variable Overheads 75% of labour cost. Fixed Overheads of the company amount to Rs. 2.40 lakhs per annum. The sale price of the motor is Rs. 230 each.
a)

Determine the number of motors that have to be manufactured and sold in a year in order to break even.

b) How many motors have to be made and sold to make a profit of Rs. 1 lakh per year? c) If the sale price is reduced by Rs. 15 each, how many motors have to be sold to break-even? 5. Two companies ABC Ltd and XYZ Ltd sell the same type of product. Their budgeted profit and loss account for the year shows the following
Particulars ABC Ltd (Rs. 000) XYZ Ltd (Rs. 000)

Sales (-) Variable Cost (-) Fixed Cost Budgeted Profit

150 120 15 135 15 100 35

150 135 15

You are required to calculate the break-even point of each company. Also state which company is likely to earn greater profit if there is (i) heavy demand and (ii) poor demand for its product.

6. The profit Volume ratio of BB & Co dealing in precision instruments is 50% and the margin of safety is 40% You are required to work out the break-even point and the net profit if the sale volume is Rs. 50 lakhs.

7.

The following information is obtained from a Company for January: Sales Rs. 20,000; Variable Costs Rs. 10,000 and Fixed Costs Rs. 6,000 Find P/V Ratio, Break Even Point and Margin of Safety at this level, and the effect of a) 20% decrease in fixed costs b) 10% increase in fixed costs c) 10% decrease in selling costs d) 10% increase in selling price e) 10% increase in selling price together with an increase of fixed overheads by Rs. 1,200 f) 10% decrease in sales price g) 10% decrease in sales price accompanied by 10% decrease in variable costs

8.

M. Ltd manufacturers three products P, Q & R. The unit selling prices of these products are Rs. 100, Rs. 80 & Rs. 50 respectively. The corresponding unit variable costs are Rs. 50, Rs. 40 & Rs. 20. The propositions (quantity-wise) in which these products are

manufactured and sold are 20%, 30% & 50% respectively. The total fixed costs are Rs. 14,80,000.

Given the above information, you are required to work out the overall break-even quantity and the product-wise break up of such quantity.

9.

S. Ltd, a multi-product company, furnishes the following data relating to year 2008
Particulars 1st Half of the Year 2nd Half of the Year

Sales Total Cost

45,000 40,000

50,000 43,000

Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half-year periods, calculate for the year 2009: (a) P/V Ratio (b) Fixed Expenses (c) BE Sales and (d) Percentage of MOS to total sales. 10. A company had incurred fixed expenses of Rs. 2,25,000 with sales of Rs. 7,50,000 and earned a profit of Rs. 1,50,000 during the first half year. In the second half year, it suffered a loss Rs. 75,000 calculate a) The P/V Ratio, BEP and MOS for the first half year. b) Expected sales-volume for the second half-year assuming that selling price and fixed expenses remained unchanged during the second half-year.

11. From

the following figures find the break-even volume: Selling price per ton Rs. 69.50; Variable price per ton Rs. 35.50; Fixed Expenses Rs. 18.02 lakhs. If this volume represents 40% capacity, what is the additional profit for an added production of 40% capacity, the selling

price of which is 10% lower for 20% capacity production and 15% lower, than the existing price for the other 20% capacity?

12.A multi-product Company has the following costs and outputs data for the last year. Particulars Sales Mix Selling price (Rs.) Variable Cost per Unit (Rs.) X 40% 20 10 Product Y S 35% 25% 25 30 15 18

Total Fixed Cost Rs. 1,50,000; Total Sales Rs. 5,00,000. The Company proposes to replace Product Z by Product S. Estimated cost and output data are; Particulars Sales Mix Selling price (Rs.) Variable Cost per Unit (Rs.) X 50% 20 10 Product Y Z 30% 20% 25 28 15 14

Total Fixed Cost Rs. 1, 50,000; Total Sales Rs. 5, 00,000. Analyze the proposed changes and suggest what decision the company should take.

13. A manufacturing organization is producing three types of products at present. The following relevant figures are available:
Types of Product Yearly Sales (Rs) Yearly Variable Costs (Rs)

C L

25,00,000 40,00,000

10,00,000 25,00,000 35,00,000

P 55,00,000 Annual Fixed Costs: Rs. 30,00,000

You are required to plot the marginal income slopes for the different types of products on a graph and identify the average marginal slop for the total output (taking all the types of products together) from the graph.