NUMERICAL PROBLEM ON MARGINAL COSTING
1.P/V Ratio 40%, Margin of Safety 60%, Sales Rs. 1,50,000. Calculate Break Even Sales, Fixed
Cost and Net Profit.
2. P/V Ratio 40%, Margin of safety 20%, Breakeven point Rs. 200 crores. Calculate total sales,
Fixed cost and Profit.
3.T Ltd. provides you the following information:
Fixed Expenses Rs. 4,000, B.E.P. Rs. 10,000.
You are required to calculate:
a. P/V Ratio
b. Profit when sales are Rs. 20,000
c. Sales to earn a profit of Rs. 6,000
d. New Break Even Point if selling price is reduced by 20%
e. Break Even Point if variable cost is increased by 25%
4. PCT Ltd. provides you the following information for the year 2011.
Particulars
Sales
Profit
First half (Rs)
20,000
7,200
Second half (Rs)
30,000
13,200
You are required to calculate the following, assuming that the fixed cost remain constant
during each of the half year.
A. The P/V Ratio, fixed cost, breakeven point and margin of safety for first half, second half
and for the whole year.
B. The amount of profit/loss when sales for the year are Rs. 60,000
C. The amount of sales required to earn a profit of Rs. 59040.
D. The amount of sales required to earn a profit of 10% on sales
E. The amount of profit for the year 2012 assuming anticipated 10% increase in selling price
but 20% decrease in physical sales volume and fixed cost.
MISCELENEOUS PROBLEMS
Example:1 M/s Natraj stationers manufactures plastic files for office use. The break-up of its
cost and sales is as follows:
Variable cost per file Rs. 40
Fixed cost
Rs. 60,000 per year
Production capacity 3,000 files per year
Selling price
Rs. Per file
You are required to compute the following:
1) Break-even point .
2) Number of files to be sold to earn a net profit of Rs.30,000.
3) If the firm manufactures and sells 500 files more per year with n additional fixed cost of
Rs. 2,000, what should be the selling price to earn the amount of profit per file ass in (2)
above?
Example:2 when Alpine Ltd. Operates at normal capacity, it manufacturers 2,00,000 units of its
product per year. The unit cost of manufacturing at normal capacity is as follows:
Particulars
Direct materials
Direct labour
Variable overheads
Fixed overheads
Product cost (per unit)
Selling price
Rs.
7.80
2.10
2.50
4.00
16.40
21.00
During the next three month, only 10,000 units can be produced and sold. The management
plans to shut down the plant, estimating that the fixed manufacturing overhead can be reduced to
Rs. 74,000 for the quarter when the plant is not operating. The fixed overhead cost are incurred
at a uniform rate throughout the year. Additional costs of plant shut down for the three month are
estimated at Rs.14,000.
1) Should the plant be shut down for three months? Show computation.
2) What is shut down point for the three months in units of product?
Example:3 the cost per unit of the three products A,B,C of a company are given below:
Particulars
A
(Rs.)
20
12
8
6
42
18
64
10,000
Direct material
Direct labour
Variable expenses
Fixed expenses
Profit
Selling price
No. Of Units Produced
Product
B
(Rs.)
16
14
10
6
46
14
60
5,000
C
(Rs.)
18
12
6
4
40
12
52
8,000
Production arrangement are such that if one if one product is given up, the production of the
other can be raised by 50%. The directors propose that ‘C’ should be given up because the
contribution from the product from the product is the lowest. Present suitable analysis of the data
indicating whether the proposal should be accepted.
Example:4 a manufacturer is thinking whether he should drop one item from his product line
and replace it with another. Given below are his present cost and output data.
Product
Price
Variable cost per
unit
Percentage of sales
Chairs
60
40
30%
Cupboard
100
60
20%
Tables
200
120
50%
Total fixed cost per
Rs.7,50,000
year
Rs.25,00,000
Sales this year
The change under consideration consists of dropping the line of cupboards in favour of cabinets.
If this dropping and change is made, the manufacturer forecast the following cost and output
data:
Product
Price
Variable cost per
unit
Chairs
60
Cupboard
160
Tables
200
Total fixed cost per
year
Sales this year
Should this proposal be accepted? Comment.
40
60
120
Rs.7,50,000
Rs.26,00,000
Percentage of sales
50%
10%
40%
Example:5 the following figures are available for department of A, B, C and D of a company:
particulars
Sales
Marginal cost
Fixed cost (apportioned)
Total cost
Profit/(loss)
A
(Rs.)
4,000
4,500
300
4,800
(800)
departments
B
C
D
(Rs.)
(RS.)
(Rs.)
5,000
6,000
7,000
3,000
2,500
3,000
4,000
1,500
1,000
7,000
4,000
4,000
(2,000)
2,000
3,000
Total
(RS.)
22,000
13,000
6,800
19,800
2,200
Management wants to discard department B as its loss is maximum. Next, department A will
also be discarded. What is your advice to management?
Example:6 PL Ltd., is producing 25,000 units of a component at a cost of Rs.50 per unit. Fixed
cost at this level of output is Rs. 10 per unit. 40% of fixed cost is avoidable. PL Ltd. Can buy the
component from outside at Rs. 42 per unit. Should he produce or buy?
Example:7 the following information is obtained from ABC Co. Ltd. Producing products X and
Y:
Particulars
Selling price
Direct materials
Direct labour(Rs. 5 per
hour)
Product X (Rs.)
200
80
12hrs.
Product
Y(Rs.)
128
80
4 hrs.
Variable overhead 50% of direct wages. Fixed overhead Rs. 8,000
Present the above information to shows the profitability of products during labour shortage.
Example:8 the following data is given:
Particulars
Product
A
Rs.24
Rs.6
Rs.8
Rs. 100
2 hour
Product
B
14
9
12
110
3hour
Direct materials
Direct labour @ Rs. 3 per hour
Variable overhead @ Rs. 4 per
hour
Selling price
Standard time
State which product you would recommend to manufacture when:
1) Labour time is the key factor.
2) Sales value is the key factor.
Example:9 present the following information to show clearly to management.
1) the marginal product cost and the contribution per unit.
2) The total contribution and profit resulting from each of the following mixtures.
Particulars
Direct material
Direct material
Direct wages
Direct wages
Product
A
B
A
B
Price per unit(Rs.)
10
9
3
2
Fixed expenses Rs.800
Variable expenses are allotted to the product as 100% of direct wages.
Particulars
Product
Price per unit
(Rs.)
Sale price
A
20
Sale price
B
15
Sales mixtures:
I)
100 units of product A and 200 of B.
II)
150 units of product A and 150 of B.
III)
200 units of product A and 100 of B.
Example: 10 the following data are available in respect of product X produced by ABC
company Ltd:
Particulars
Rs.
Sales
50,000
Direct material
20,000
Direct labour
10,000
Variable overheads
5,000
Fixed overheads
10,000
The company now proposes to introduce a new product Z so that sales may be increased by Rs.
10,000. There will be no increase in fixed costs and the estimated costs of product Z are –
materials Rs. 4,800; labour Rs.2,200; and overheads Rs. 1,400. Advise whether product Z will be
profitable or not.
Under absorption costing
method
1) Existing position
Direct materials
Direct labour
Variable overheads
Fixed overheads
Total cost
Sales
Profit
Product X
(Rs.)
20,000
10,000
5,000
10,000
45,000
50,000
5,000
Example:11 A company has a capacity of producing 1,00,000 units of a certain product in
month. The sales department reports that the following schedule of sale priced is possible:
80%
90%
100%
Volume of production 60% 70%
0.90 0.80
0.75
0.67
0.61
Selling price per
units(Rs)
The variable cost of manufacture between these levels is Rs.0.15 per unit and fixed cost
Rs.40,000.
1) Prepare a statement showing incremental revenue and differential cost at each stage. At
which volume of production will the profit be maximum?
2) If there is a bulk offer at Rs.0.50 per unit for the balance capacity over the maximum
profit volume for export and price quoted will not affect the internal sale. Will you advise
to accept this bid and why?
Example:12 form the following information, calculate the break-even point in units and in sales
value:
Output
Selling price per unit
Variable cost per unit
Total fixed cost
3,000 units
Rs.30
Rs.20
Rs.20,000
Example:13 from the following particulars, calculate:
i)
ii)
Break-even point in terms of sales value and in units.
Number of units that must be sold to earn a profit of Rs.90,000
Fixed factory overhead cost
Fixed selling overhead cost
Variable manufacturing cost per unit
Variable selling cost per unit
Selling price per unit
Rs. 60,000
Rs. 12,000
Rs. 12
Rs. 3
Rs. 24
Example:14 The fixed cost amount to Rs. 50,000 and the percentage of variable cost to sales is
given to be 66 2/3%. 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.
Example : 15
Sales
Profit
Variable cost
Rs.
1,00,000
Rs. 10,000
70%
Find out (i) P/V ratio, (ii) fixed cost (iii) sales volume to earn a profit of Rs.40,000
Example:16 sales of a product amounts to 200 units per month at Rs. 10 per unit. Fixed
overhead cost is Rs.400 per month and variable cost is Rs.6 per unit. There is a proposal to
reduce prices by 10 per cent. Calculate present and future P/V ratio. How many units must be
sold to earn the present total profits?
Example:17 The sales turnover and profit during two years were as follows:
Year
1994
1995
You are required to calculate:
i)
ii)
iii)
Sales (Rs.)
1,40,000
1,60,000
Profit(Rs.)
15,000
20,000
P/V ratio .
Sales required to earn a profit of Rs. 40,000.ss
Profit when sales are Rs. 1,20,000 .
Example:18 calculate contribution in each of the following alternative cases:
1)
2)
3)
4)
Sales Rs.20,000; variable cost Rs. 8,000.
Fixed costs 9,600; profit 2,400.
Sales 40,000; P/V ratio 60%.
Break-even sales 1600 units; contribution per unit Rs. 6; profit Rs. 2,400.
Example:19 PCT Ltd. Provides you the following information for the year ending 31st march
2012.
Normal capacity – 2000units;
Production and sales- 2000 units;
Selling price per unit- Rs. 10
Direct material-Rs.2000
Direct wages- Rs. 2,000 & direct Expenses- Rs.1,600
Factory overheads(15% variable)-Rs. 4,000
Office and Admn. Expenses(80%fixed)-Rs.4,000
Selling and distribution expenses (75% fixed)- Rs. 4,000
Required
Calculate the following
1) Profit volume ratio (P/V ratio)
2) Break-even point (in units)
3) Break-even point (in Rs.)
4) Break-even point (in %)
5) Margin of safety (in units)
6) Margin of safety (in Rs.)
7) Margin of safety (in %)
Example: 20 The turnover and profits during the two periods were as follows.
Particulars
Sales (Rs.)
Profit/loss(Rs.)
Period-I
7,000 units
10,000 loss
Period-II
9,000 units
10,000 profit
The selling price per unit Rs. 100
Calculate
1) Fixed cost.
2) P/V ratio.
3) Sales at break-even point.
4) The number of units to sold to earn a profit of Rs. 40,000.
5) Profit when sales are 20,000 units.
Example:21 The following figures of sales and profit for two periods are available in respect of
a concern.
Particulars
Sales (Rs.)
Profit(Rs.)
Period I
1,00,000
15,000
Period II
1,20,000
23,000
You are required to find out:
1) P/V ratio
2) Fixed cost
3) Break-even point
4) Profit at on estimated sale of Rs. 1,25,000
5) Sales required to earn a profit of Rs. 20,000