3 Nov Cost-Volume - Profit Analysis - Qusetions

Marginal Costing & Cost-
Volume- Profit Analysis

Change through Increase in units
1 Unit/pc 2 Unit/pc 3 Unit/pc 499 Unit/pc 500 Unit/pc 501 Unit/pc Working note
SALES Rs 100
Variable cost Rs 80
S-VC= Contribution Rs 20
Fixed Cost Rs 10,000
Contribution- Rs 9980
Fixed Cost=
Profit/Loss
Change through Increase in units
(Loss) (Loss) (Loss) (Loss) (BEP) (Profit)
SALES Rs 100 Rs 200 Rs 300 Rs 49900 Rs 50,000 Rs 50,100 C: S-VC

Variable cost Rs 80 Rs 160 Rs 240 Rs 39920 Rs 40,000 Rs 40,080 50,000-
S-VC= Contribution Rs 20 Rs 40 Rs 60 Rs 9980 Rs 10,000 Rs 10,020
40,000=10,000
BEP:FC/C
Fixed Cost Rs 10,000 Rs 10,000 Rs 10,000 10,000 Rs 10,000 Rs 10,000 10,000/20=
500 Pc
Contribution- Rs 9980 (Rs 9960) (Rs 9940) (Rs 20) Rs 000 Rs 20
Fixed Cost=
Profit/Loss
Marginal Cost Equation
Equations for elements of cost are as follows:
As we know:
Sales-Cost= Profit
or Sales- (Fixed cost + Variable cost)= Profit
or Sales- Variable cost= Fixed cost + Profit
It is known as marginal cost equation.
We can convey it as under:

Where S = Sales V= Variable cost F= Fixed cost P= Profit
Sales = Variable costs + Fixed Expenses ± Profit /Loss
Or
Sales – Variable Cost = Fixed Expenses ± Profit /Loss
Or
Sales – Variable Cost = Contribution
Ascertainment of Profit under Marginal Cost
• ‘Contribution’ is a fund that is equal to the selling

price of a product less marginal cost’.
• Contribution may be described as follows:
• Contribution=Selling Price - Marginal/Variable cost

• Contribution = Fixed Expenses + Profit
• Contribution – Fixed Expenses = Profit
• If contribution is more than Fixed cost (C>FC) Profit
• If contribution is less than Fixed cost (C<FC) Loss
P/V Ratio
SALES Rs 100 Rs 200 Rs 300 Rs 49900 Rs 50,000 50,100 P/V Ratio:

=
Contribution/Sales*
100
Variable cost Rs 80 Rs 160 Rs 240 Rs 39920 Rs 40,000 40,080
S-VC= Contribution Rs 20 Rs 40 Rs 60 Rs 9980 Rs 10,000 Rs 10,020
Fixed Cost Rs 10,000 Rs 10,000 Rs 10,000 10,000 Rs 10,000 Rs 10,000
Contribution- Rs 9980 (Rs 9960) (Rs 9940) (Rs 20) Rs 000 Rs 20

Fixed Cost=
Profit/Loss
20/100*100= 10,000/50,00
20%
0*100= 20%
P/V Ratio Various Formulas
Marginal Equation:
1. (Contribution/sale)*100= P/V Ratio
C=S-V=F+P
2. (Sales-Variable cost/sales)*100= P/V Ratio
When Fixed and profit is given
3. (Fixed cost +profit/sales) * = P/V Ratio
4. Sales = Fixed Cost + Profit/P/V ratio = F + P/P/V ratio
When Variable cost ratio is given
5. (1-Variable cost/sales)*100= P/V Ratio
When information of two period is given
6. (Change in Contribution or Profit/Change in sales)*100 = P/V Ratio
Combined and composite P/V Ratio is given (more than 2 year)
7. Total Contribution/Total Sales*100
Other Formula: Profit/Margin of safety *100 and Fixed Cost /Break even point *100
When Profit has to calculate from Sales (Desired profit)
8. Profit= Sales * P/V Ratio- FC
Sales: 80,000, Variable cost Rs 48,000, Fixed Costs 20,000,
P/V ratio will be..?
Sales-
Less: Variable Cost
Contribution
Less Fixed Cost
=PROFIT
QUESTION:
Formulas for calculation of different factors
• Contribution= Sales* P/V Ratio
• Profit = (Sales* P/V Ratio) –Fixed Cost
• Fixed Cost = (Sales* P/V Ratio) –Profit
• Variable Cost= Sales * (1-PV Ratio)

(1) PV ratio = 40% (2) Contribution:
VC=Sales (1-p/v Ratio) Sales 80,000
Less- VC
Contribution =
(3) Profit (4) Profit when Sale= 1,20,000

Sale= 80,000 PV ratio-40%
PV ratio-40% PROFIT= Sales * P/V Ratio – Fixed Cost
PROFIT= Sales * P/V Ratio – Fixed Cost
Illustration 1:
Find out:
(i) P/V ratio,
(ii) Fixed Cost
(iii) Sales Volume to earn a Profit of Rs. 40,000
Example 2:
The following products are manufactured and sold by Rashmi
Limited. Variable costs and prices are shown below:
1) Break-even = Fixed costs
(UNITS) Contribution Per unit
Or
Break-even = Fixed costs
(UNITS) Selling price Per unit –Variable Per unit
Determining 2) Break-even
(Values)
= Fixed costs * Sale price unit
Contribution Per unit
the Break-Even Break-even = Fixed costs

Or
Point sales volume 1 – (Variable costs/Sales cost (pu))

Or
BEP= Break-even = Fixed costs
P/V Ratio
OR
Quantity * sales price unit
Or
3) BEP as Percentage of full capacity
=Value of BEP/ Sales price per unit
Break-Even Chart
• Break-Even Chart is the most useful graphical representation of marginal costing. It converts
accounting data to a useful readable report. Estimated profits, losses, and costs can be determined at
different levels of production. Let us take an example.
• Example: Calculate break-even point and draw the break-even chart from the following data:
Fixed Cost = Rs 2,50,000
Variable Cost = Rs 15 per unit
Selling Price = Rs 25 per unit
Production level in units 12,000, 15,000, 20,000, 25,000, 30,000, and 40,000.
Production Level : 12,000, 15,000, 20,000, 25,000, 30,000, and 40,000.
12,000
15,000
20,000
25,000
30,000
40,000
PV= S-
V/S*100=
10-
8/10=20%
From the following data relating to Gajni

gears ltd: Calculate Break-Even Point.
• Sales (12,000 units at Rs 10 per unit)
• Variable cost: at Rs 8 Per unit
• Fixed cost 8000
• Profit : ..?
What is Margin of Safety?
It may be expressed in monetary terms or as a percentage, i.e., the Actual sales –BEP sales/ Actual
margin of safety in relation to total sales. It is an extremely valuable sales *100
OR
guide and indicates the financial strength of the business. 1 –BEP sales/ Actual sales *100
Example 4: Current sales are 20,000 units p.a. Selling price is Rs.6 per unit. Prime costs are
Rs.3 per unit. Variable overheads Re. 1 per unit Fixed costs are Rs.30,000.
Calculate:
(i) P/V ratio
(ii) Break-even point, and
(iii) Margin of safety
Question: Calculate
• (i) Break-even point in terms of sales value and in units.
• (ii) Number of units that must be sold to earn a profit of Rs.
90,000.
From the following data, you are required
to calculate:
• (a) P/V ratio
• (b) Break-even sales with the help of P/V ratio.
• (c) Sales required to earn a profit of Rs. 4,50,000
• Fixed Expenses = Rs. 90,000
• Variable Cost per unit:
• Direct Material = Rs. 5
• Direct Labour = Rs. 2
• Direct Overheads = 100% of Direct Labour
• Selling Price per unit = Rs. 12.

Break-Even Analysis: Problem with Solution # 3.
• From the following data, you are required to calculate break-even

point and net sales value at this point:
• If sales are 10% and 25% above the break-even volume, determine
the net profits.
Question
• From the following particulars, find out the break-even-point:
• What should be the selling price per unit, if the break-even point
should be brought down to 6,000 units?
Question
• Break-Even Analysis: Problem with Solution # 5.
• The fixed costs amount to Rs. 50,000 and the percentage of variable costs to sales is given to be 66 ⅔%.
• If 100% capacity sales are Rs. 3,00,000, find out the break-even point and the percentage
sales when it occurred. Determine profit at 80% capacity:

Break-Even Analysis: Problem
• Calculate:
• (i) The amount of fixed expenses.
• (ii) The number of units to break-even.
• (iii) The number of units to earn a profit of Rs. 40,000.
• The selling price per unit can be assumed at Rs. 100.
• The company sold in two successive periods 7,000 units and 9,000 units and has incurred a
loss of Rs. 10,000 and earned Rs. 10,000 as profit respectively.
Question: Break-Even Analysis:
• A company is making a loss of Rs. 40,000 and relevant information is as follows:
• Sales Rs. 1,20,000; Variable Costs Rs. 60,000; Fixed costs Rs. 1,00,000.
• Loss can be made good either by increasing the sales price or by increasing sales volume. What are Break even
sales if
• (a) Present sales level is maintained, and the selling price is increased.
• (b) If present selling price is maintained and the sales volume is increased. What would be sales if a profit of Rs.
1,00,000 is required ?
Question: From the following data :
• Direct materials: 20,000

• Direct Wages: 16,000
• Variable Factory overhead: 25% of wages
• Variable administration overhead: 10% of factory cost
• Variable selling and distribution: Rs 4 per unit
• Fixed overhead: Rs 8000
• Units sold 1000@: Rs 64 per unit
• Calculate P/V RATIO , BEP , MOS and PROFIT

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Marginal Costing & Cost-

Volume- Profit Analysis

Fixed Cost Rs 10,000

SALES Rs 100 Rs 200 Rs 300 Rs 49900 Rs 50,000 Rs 50,100 C: S-VC

We can convey it as under:

• ‘Contribution’ is a fund that is equal to the selling

• Contribution=Selling Price - Marginal/Variable cost

SALES Rs 100 Rs 200 Rs 300 Rs 49900 Rs 50,000 50,100 P/V Ratio:

S-VC= Contribution Rs 20 Rs 40 Rs 60 Rs 9980 Rs 10,000 Rs 10,020

Fixed Cost Rs 10,000 Rs 10,000 Rs 10,000 10,000 Rs 10,000 Rs 10,000

Contribution- Rs 9980 (Rs 9960) (Rs 9940) (Rs 20) Rs 000 Rs 20

• Contribution= Sales* P/V Ratio

• Profit = (Sales* P/V Ratio) –Fixed Cost

• Fixed Cost = (Sales* P/V Ratio) –Profit

• Variable Cost= Sales * (1-PV Ratio)

(3) Profit (4) Profit when Sale= 1,20,000

the Break-Even Break-even = Fixed costs

Point sales volume 1 – (Variable costs/Sales cost (pu))

From the following data relating to Gajni

• (b) Break-even sales with the help of P/V ratio.

• (c) Sales required to earn a profit of Rs. 4,50,000

• Fixed Expenses = Rs. 90,000

• Variable Cost per unit:

• Direct Material = Rs. 5

• Direct Labour = Rs. 2

• Direct Overheads = 100% of Direct Labour

• Selling Price per unit = Rs. 12.

• From the following data, you are required to calculate break-even

• Break-Even Analysis: Problem with Solution # 5.

sales when it occurred. Determine profit at 80% capacity:

• (i) The amount of fixed expenses.

• (ii) The number of units to break-even.

• (iii) The number of units to earn a profit of Rs. 40,000.

• The selling price per unit can be assumed at Rs. 100.

• Direct materials: 20,000

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