Marginal Costing

Some Important Definition:

 Marginal Cost: Marginal Cost is the additional cost incurred for increase in one
additional unit of output. Marginal cost is nothing but the variable cost.
 Marginal Costing: Marginal Costing is the method of ascertaining marginal cost and it
evaluates the effect of fixed and variables costs on profit due to change in volume of
production.
 Distinguish features of Marginal Costing are:
(a) Only variable costs are charged to the cost unit. Fixed costs are recovered from
contribution;
(b) All costs including semi variable costs are divided into two parts, fixed and variable;
(c) Closing inventories are valued at variable cost only;
(d) Break-even Analysis and Cost-volume-profit Analysis are integral parts of this costing
technique.
 Marginal Costing technique is having many advantages, such as:
(a) It provides useful data for managerial decision- making;
(b) It is a very effective tool of profit planning;
(c) Its facilities control over variable costs by avoidance of arbitrary apportionment
or allocation of fixed costs;
(d) Problems on computation of accurate fixed factory overhead rate can be avoided as
fixed overheads are charged against contribution;
 (e) It provides the management with many useful techniques for decision – making like
Break – even Analysis, etc.
 Limitations of Marginal Costing are:
(a) It assumes the semi- variables costs can be segregated into two parts, fixed and
variable elements. In practice, however, such segregation of semi- variable costs is
very difficult;
(b) It excludes fixed cost for decision – making, which sometimes may lead to wrong
conclusion;
(c) It fails to reflect the impact of increased fixed costs due to development of technology
on production costs;
(d) Variable cost technique cannot be successfully applied in “Cost plus contract”.
 Cost-volume-profit (CVP) Analysis examines the relationship of costs and profit to the
volume of production to maximize profit of the firm. The method of studying the
relationship between the cost, volume of production, sales and their impact on profit is
called as ‘Cost-volume-profit Analysis’. CVP Analysis is a logical extension of marginal
costing and is used as a very powerful tool by the management in the process of
budgeting and profit planning.
 Objectives of CVP Analysis are:
(a) It helps to forecast profit fairly and accurately;
(b) It acts as an effective tool of profit planning to the management;
(c) It helps in ascertaining break-even point of the product produced and sold.
(d) It is very much useful in setting up flexible budget;
(e) It assists the management in the process of performance evaluation for the purpose of
control;
 (f) It helps in formulating price policies by projecting the effect of different price
structures on costs and profits.
 Underlying assumption of CVP Analysis are:
(a) Total cost consists of two components – fixed cost and variable cost;
(b) Selling price per unit remains constant at different volume of sales;
(c) Only one product is sold by the concern or if it sells multiple product, the sales mix
remains constant at different volume of sales;
(d) Volume of production is equal to the sales volume.
 In CVP Analysis, costs are classified in two parts – fixed cost and variable cost. Semi –
variable cost is not separately recognized in CVP Analysis. Fixed portion of semi –
variable cost is clubbed with the fixed cost and its variable portion is clubbed with the
variable cost.
 Elements of CVP Analysis are:
 Marginal Cost Equation;
 Contribution;
 Profit – Volume Ratio;
 Break-even Point;
 Margin of Safety
 Marginal Cost Equation exhibits the relationship between the contribution, fixed cost
and profit. It explains that the excess of sales over variable cost is the contribution
towards fixed cost and profit, i.e. S – V = F + P.
 Contribution is the excess of sales over variable cost, i.e. C = S – V. This contribution is
available towards fixed cost and profit, i.e. C = F + P.
 Profit – Volume Ratio (P/V Ratio) is the ratio of contribution and sales. It is generally
expressed in percentage. It exhibits % of contribution included in sales, i.e. P/V Ratio =
C/S x 100. It indicates the effect on profit for a given change in sales.
 Break - even Point (BEP) is that level of sales where there is no profit or no loss. At
break – even point, total sales revenue is equal to total cost. Any sales above this BEP, a
concern earns profit, whereas any sales below this BEP, the concern suffers loss. At BEP,
total fixed cost and variable cost up to that level of sales have been recovered from sales.
Generally, at any other point of sales, contribution from sales is available towards fixed
cost and profit. But as there is no profit or loss at BEP, Contribution from sales at BEP is
available towards fixed cost only, i.e. at BEP, C = F.
 Margin of Safety (MS) is the level of sales made above the break – even point. In other
words, Margin of Safety is the excess of actual sales over BEP sales. Generally, at any
point of sales, contribution from sales is available towards fixed cost and profit. But as
the total fixed cost has already been recovered at break – even point, contribution from
sales at margin of safety is available towards profit only, i.e. at MS, C = P.
 CVP Analysis is popularly known as Break – even Analysis, although there exists a
narrow difference between these two terms. CVP Analysis refers to the study of the effect
on profit due to changes in cost and volume of output, whereas BE Analysis refers to the
study of determination of that level of activity where total sales is equal to the total cost
and also the study of determination of profit at any level of activity. However, the
technique of BE Analysis is so popular for studying CVP Analysis that these two terms
are generally used synonymously.
 Break – even Chart (BE Chart) is the graphical presentation of Break – even Analysis.
It depicts the relationship between costs, sales and profits. BE Chart graphically shows
the profit or loss at various levels of activity and also shows the level of activity where
there is no profit no loss (i.e. total cost equals total sales)

 Angle of Incidence is the angle formed by intersection of sales line and total cost line at
break – even point in the break – even chart. This angle exhibits the rate at which profits
are being earned by a concern after reaching the break
– even point. It shows the profit earning capacity of a concern. Wider angle of incidence
exhibits higher profit earning capacity of the concern or vice – versa.
Income Statement under Marginal Costing:

Rs.

Sales xxxx

Less: Variable Cost xxx

Contribution xxxxx

Less: Fixed Cost (Operating) xxx

Profit (EBIT) xxxxx

Formula:

1. Contribution (C) = Sales – Variable Cost = Fixed Cost + Profit

2. Profit – Volume Ratio (P/V Ratio) = Contribution / Sales * 100
= {(Change in profit) / (Change in sales)} * 100
3. BEP Sales (in value) = Fixed Cost / (P/V Ratio)

BEP Sales (in units) = Fixed Cost / Contribution per unit

4. Margin of Safety (MOS) = Actual Sales – BEP sales

= Profit / (P/V ratio)
5. Required Sales (in value) = (Fixed Cost + Profit) / Contribution per unit Required
Sales (in units) = (Fixed Cost + Profit) / (P/V Ratio).
Model Problems:

Q1. X Ltd. Made sales during a certain period for Rs. 1,00,000. The net profit for the same period
was Rs. 10,000 and the fixed overheads were Rs. 15,000.

Find out:

(i) P/V Ratio.

(ii) Required sales to earn a profit of Rs. 15,000.

(iii) Net Profit from sales of Rs. 1,50,000.

(iv) Break – even point sales.

Solution:

(i) P/V Ratio = {(F+P) / S} x 100

Here, F = Rs. 15,000, P = Rs. 10,000 and S = Rs. 1,00,000.
⸫ P/V Ratio = [(15,000 + 10,000) / 1,00,000] x 100
⸫ P/V Ratio = 25%.
(ii) P/V Ratio = {(F+P) / S} x 100
Here 25 = {(15,000+15,000) /S}x100 [⸪ Given Profit = ₹ 15,000] Or,
S = (30,000/25) x 100
⸫ Sales = ₹1,20,000
⸫ Sales required to earn a profit of ₹15,000 = ₹1,20,000.
(iii) When Sales =₹1,50,000, Then Profit = ? P/V
Ratio ={(F+P) / S} x 100
Here, 25 = [(15,000+P)1,50,000] x 100 [⸪Given Sales=₹1,50,000]
Or, 15,000 + P = 1,50,000 x 25 / 100
Or, 15,000 + P = 37,500
⸫ Profit = 37,500 – 15,000 = ₹22,500
⸫ Net Profit from sales of ₹1,50,000 = ₹22,500.
 (iv) We know, at BEP –
P/V Ratio = F+ BEP Sales x 100 Or, 25 =
(15,000 / BEP Sales) x 100
Or, BEP Sales = (15,000 / 25) x 100 = 60,000
⸫ Break – even Point Sales = ₹60,000.

Q2. DB Ltd furnished the following information:

2004-2005 2005-2006
Particulars
₹ ₹

Sales (₹ 10/ unit) 2,00,000 2,50,000

Profit 30,000 50,000

You are required to compute:

(a) P/V Ratio.

(b) Break-even point.
(c) Total variable cost for 2004-2005 & 2005-2006.
(d) Sales required to earn a profit of ₹60,000.
(e) Profit/Loss when sales are ₹1,00,000.
(f) Margin of Safety when Profit is ₹80,000.
(g) During 2006-2007, due to increase in cost, variable cost is expected to rise to
₹7/unit and fixed cost to ₹55,000. If selling price can not be increased, what will be the
amount of sales to maintain the profit of 2005-2006?

Solution

𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑜𝑓𝑖𝑡
(a) P/V Ratio = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒𝑠
𝑥 100

Here, P/V Ratio = [(50,000–30,000) / (2,50,000–2,00,000)] x100 = 40%

(b) P/V Ratio = {(F+P) / S} x 100 In
the year 2005-2006 –
P/V Ratio = [(F + 50,000) / 2,50,000] x 100 Or, 40
= (F + 50,000) 2,500
Or, F + 50,000 = 1,00,000
⸫ Fixed Cost = ₹50,000
Now, BEP Sales = Fixed Cost / P/V Ratio x 100
⸫ BEP Sales = (50,000 /4) x 100 = ₹1,25,000.
(c) P/V Ratio = {(S – V ) / S} x 100 In
the year 2004-2005 –
40 = {(2,00,000 – V) / 2,00,000} x 100
Or, 80,000 = 2,00,000 – V
Or, V = 2,00,000 – 80,000
⸫ Total Variable Cost for 2004-05 = ₹ 1,20,000. In the
year 2005-06 –
40 = {(2,50,000 – V) / 2,50,000} x 100
Or, 1,00,000 = 2,50,000 – V
Or, V = 2,50,000 – 1,00,000
⸫ Total Variable Cost for 2005-06 = ₹ 1,50,000.
(d) P/V Ratio = {(F + P) / S} x 100
Here, 40 = {(50,000 + 60,000) / S} x 100
Or, S = (1,10,000 / 40) x 100
⸫ Required Sales = ₹ 2,75,000.
(e) P/V Ratio = {(F + P) / S} x 100
Here, 40 = {(50,000 + P) / 1,00,000} x 100
Or, 40,000 = 50,000 + P
⸫ P = (10,000)
 ⸫ Loss = ₹ 10,000.
(f) MS = P / (P/V Ratio) Here,
MS = 80,000 / 0.40
⸫ Margin of Safety = ₹ 2,00,000.
(g) New contribution per unit = ₹ 10 - ₹ 7 = ₹ 3
⸫ New P/V Ratio = C/S x 100 = 3/10 x 100 = 30%
Desired Profit = ₹ 50,000
Now, P/V Ratio {(F + P) / S} x 100 Here, 30 =
{(55,000 + 50,000) / S} x 100
⸫ S = 1,05,000 / 30 x 100 = ₹ 3,50,000
⸫ Required sales to maintain desired profit = ₹ 3,50,000.

Solved Previous Year Question:

Q1. The particulars of two plant producing an identical product with the same selling price are as
under:
Plant A Plant B
Capacity utilization 70% 60%
(₹ lacs) (₹ lacs)

Sales 150 90

Variable Cost 105 75

Fixed Cost 30 20

It has been decided to merge Plant B with Plant A. The additional fixed expenses involved in the
merger amount to 2 lacs.
You are required to find out – (a) the break even point of Plant A and Plant Bbefore merger and
the break -even point of the merged plant and (b) the capacity utilization of the integrated plant
required to earn a profit of ₹ 18 lacs.
Solution

(a) BEP before merger of Plant

Plant A Plant B
Particulars (70%) (60)
(₹ lacs) (₹ lacs)

Sales 150 90

Less: V.C 105 75

Contribution 45 15
𝐶 45 15
P/V Ratio [ 𝑥 100]
𝑆 𝑥 100 = 30% 𝑥 100 = 16.67%
150 90
20 𝑙𝑎𝑐
BEP [ 𝐹𝐶 ] 30 𝑙𝑎𝑐
= 100 lacs 16.67%
𝑃/𝑉 30%
= 120 𝑙𝑎𝑐(𝑎𝑝𝑝𝑟𝑜𝑥)

BEP after merger of Plant

Merged Plant
Particulars Plant A Plant B (100%)
(A + B)
150
Sales [ 𝑥 100] 214.285 150 364.285
70
105
Less: V.C.[ 𝑥 100]
70
150 125 275.000
75
[ 𝑥 100]
60
Total Contribution 89.285

𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛
Total P/V ratio = 𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 𝑥 100
 89.285
= 364.285
x 100

𝑇𝑜𝑡𝑎𝑙 𝐹𝐶 (30𝐿+20𝐿+2𝐿)
BEP = 𝑃𝑉 𝑅𝑎𝑡𝑖𝑜= 24.5% = 212.244 𝑙𝑎𝑐

(b) Required Sale = 𝐹𝐶+𝑃

𝑃𝑉 𝑅𝑎𝑡𝑖𝑜
52𝐿+18𝐿
= = 285.714 𝑙𝑎𝑐
24.5%

% of Capacity utilization = 𝑅𝑒𝑞𝑢𝑖𝑟𝑒𝑑 𝑆𝑎𝑙𝑒 𝑥 100

𝑇𝑜𝑡𝑎𝑙 𝑆𝑎𝑙𝑒

285.714
= 364.285 𝑥 100 = 78.43 %

Q2. For a manufacturing concern, when volume of production is 3,000 units, average cost is ₹4 per
unit and when volume of production is 4,000 units, average cost is ₹
3.50 per unit. If the break-even point is reached at 5,000 units of production and sale, find out the
P/V Ratio.

Solution

Quantity (Unit) Average Cost Total Cost

or Cost p.u.

3,000 x4 = 12,000

4,000 X 3.5 = 14,000

Increase in Quantity = 1,000 Increase in Total Cost = 2,000

units

⸪ Variable Cost per unit = 2,000 = ₹2

1,000

Total Cost = Fixed Cost + Variable Cost

At 3,000 units,

12,000 = FC + (3,000 x 2)

12,000 = FC + 6,000

⸪ Fixed Cost = 6,000

Now, BEP Point = 5,000 units (given)

𝐹𝐶
Or,
𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 5,000

6,000
Or, 𝐶𝑜𝑛𝑡𝑟𝑖𝑏𝑢𝑡𝑖𝑜𝑛 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 = 5,000

Or, Contribution per unit x 5,000 = 6,000

Or, Contribution p.u. = 6,000 = 1.2

5,000

Or, S.P p.u. – V.C. p.u = 1.2 Or,

S.P p.u – 2 = 1.2

Or, S.P p.u = 1.2 +2 = 3.2

⸪ P/V Ratio = 𝐶
𝑆 𝑥 100

1.2
= 3.2 𝑥 100

= 37.5%

Q3. Rainbow Ltd. Sold goods for ₹ 30,00,000 in a year. In that year, the variable cost is 60% of
sales and profit is ₹ 8,00,000.
Find out: (i) P/V Ratio, (ii) Fixed Cost, (iii) Break-even sales, (iv) Break-even sales if selling
price was reduced by 10% and fixed costs were increased by ₹ 1,00,000.
Solution

Sales = 30,00,000

Less: Variable Cost (60% of Sales) = 18,00,000

Contribution = 12,00,000

Less: Fixed Cost *

Profit = 8,00,000

⸪ Profit = C – FC 8,00,000 =

12,00,000 – FC

⸪ FC = 4,00,000.............................(ii)

P/V Ratio = 𝐶 12,00,000

𝑆 𝑥 100 = x 100 = 40%.....................(i)
30,00,000
𝐹𝐶 4,00,000
BEP =
= = 10,00,000.................................(iii)
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜 40%

iv….. Required Statement

Sales (30,00,000 ÷ 10%) = 27,00,000 Less:

V.C = 18,00,000

Contribution = 9,00,000

Revised P/V Ratio = 𝐶 x 100

𝑆

1 1
9,00,000
=27,00,000 𝑥 100 = 𝑥 100 = 33 %
3 3

𝐹𝐶
Revised BEP
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜 4,00,000+1,00,000
= 331% = ₹15,00,000
3
Q4. The sales and profits of J.K. Ltd. During two years were as given below:

Year Total Sales (₹) Total Cost (₹)

2010 3,00,000 2,60,000

2011 3,40,000 2,90,000

You are required to compute:

(i)P/V Ratio; (ii) Break-even Point; (iii) Sales required to reach a profit of ₹ 40,000;
(iv) Profit made when sales amount is ₹ 2,50,000; (v) Margin of Safety when sales are ₹
2,50,000.

Solution

Year Sale Cost Profit

2010 3,00,000 =
-2,60,000
40,000

2011 3,40,000 =
-2,90,000
50,000

Change in Sale =40,000 Change in =10,000

Profit

10,000
𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑃𝑟𝑜𝑓𝑖𝑡
i. P/V Ratio = 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑆𝑎𝑙𝑒
𝑥 100 = = 25%
40,000

ii. P/V ratio = 25%

Or, 𝐶 = 25%
𝑆
𝐶
Or, 3,00,000
= 25%
 ⸫ Contribution = 75,000
Or, FC + P = 75,000
Or, FC + 40,000 = 75,000
Or, FC = 75,000 – 40,000 = 35,000
𝐹𝐶
BEP = 35,000
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜 = = 1,40,000
25%

iii. Required Sale = 𝐹𝐶+𝑃

𝑃𝑉 𝑅𝑎𝑡𝑖𝑜 35,000+40,000
= 25% = 3,00,000
iv. Required Sale = 𝐹𝐶+𝑃

𝑃𝑉 𝑅𝑎𝑡𝑖𝑜

Or, 2,50,000 = 35,000+𝑃

25%

Or, 35,000 + P = 62,500

Or, Profit = 27,500
v. Margin of Safety = Total Sale – BEP Sale
= 2,50,000 – 1,40,000
= 1,10,000

Q5. Fill in the blanks for each of the following independent information:

Situation P Q R S T

Selling price per unit ? (a) Rs. 50 Rs. 20 ? (g) Rs. 30

Variable cost as % of
60 ? (c) 75 75 ? (i)
selling price

Number of units sold 10,000 4,000 ? (e) 6,000 5,000

Rs. Rs.
Contribution Rs.20,000 Rs.80,000 ? (f)
25,000 50,000

Fixed cost Rs.12,000 ? (d) Rs.1,20,000 Rs.10,000 ? (j)

Profit / Loss ? (b) Rs.20,000 Rs.30,000 ? (h) Rs.15,000

Solution
** Product P & S is similar type.
Product P & S is similar type.
So here I have solved three products – P, Q & R
Product P
Income statement
Sales (10,000 * x) = 10,000x
(-) VC (10,000x * 60%) = 6,000x
4,000x = 20,000
Less : fixed cost = 12,000
Profit 8,000-------------------Ans.(b)
4,000x = 20,000
x = 20,000/4,000 = 5
⸫ selling price p. u = Rs.5---------------------Ans.(a)
Product Q Income
statement
Qty. P.u. Total

Sales 4,000 50 20,000

(-) VC * * *

Contribution 80,000
(-) FC *

Profit 20,000
FC = 80,000 – 20,000 = 60,000------------------------Ans.(d)
VC = 2,00,000 – 80,000 = 1,20,000
⸫ % of VC = VC / sales * 100
= 1,20,000 / 2,00,000 *100
=60%------------------Ans. (c)
Product R
Qty. P.u. Total
Sales x 20 20x
(-) VC (75%)
[20x * 75%] 15x

Contribution 5x
(-) FC 1,20,000
Profit 30,000
⸪ 5x-1,20,000 = 30,000 Or, 5x
= 1,20,000 + 30,000
Or, 5x =1,50,000
Or, x = 30,000
⸫ No. of units sold = 30,000-----------------------Ans.(e)
⸫ Contribution = 5x
=5 * 30,000
= ₹1,50,000---------------Ans.(f)
Q6. Fill in the blanks of each of the following independent situation:

Products
Particulars
X Y Z

No. of units sold ? (i) 10,000 5,000

Selling price per unit (₹) 20 ? (ii) 30

Variable cost of sales (%) 75 75 ? (iii)

Contribution (₹) ? (iv) 25,000 50,000

Fixed Cost (₹) 1,20,000 10,000 ? (v)

Profit / Loss (₹) 30,000 ? (vi) 15,000

Solution

Already done

Similar to Q6.

Q7. Information for two successive years are given below:

Year Units Selling price Average cost

2014 12,000 50 30

2015 15,000 50 28

Calculate: (i) P/V Ratio and Fixed cost; (ii)Break even sales; (iii) sales to earn profit of Rs.
12,000; (iv) selling price to earn profit of Rs. 1,50,000 by selling price 9,000 units; (v) Margin of
safety when profit is Rs.30,000.

Solution:-

1. Quantity Average cost Total cost

12,000 30 3,60,000

15,000 28 4,20,000

3000 60,000
Variable cost P.u. =60,000/3,000 =20/-
TC = FC + VC
At 12,000 units

3,60,000 = FC+(12,000*20)
3,60,000 = FC+24,000 Or,
FC = 120000
3,60,000 = FC+(12000*20)

2. S.P. P.u. = 50/-

Variable cost P.u. =20/-
Contribution P.u. =Rs.30/-

(i)P/V ratio = C/S*100 = 30/50*100 = 60%

Fixed cost = Rs.1,20,000
(ii) B.E.P = FC / P/v ratio = 1,20,000 / P/v ratio = 1,20,000/60% (iii)Reqd. sales =
FC+P / P/v ratio = 1,20,000+2,10,000/60% = 5,50,000 (iv) Reqd. sales = FC+P / P/v
ratio = 1,20,000+1,50,000/60% = 4,50,000
⸫ Cost p.u. will be = 4,50,000/9,000 units = 50/-
(v) Margin of safety = Profit / P/v = 30,000/60% = Rs.50,000.

Q8. Dingdong Ltd. manufacturing a particular product with a capacity to produce 5,000 units.
The following particulars relate to the activities of the company for the year 2017 and 2018:

2017 2018
Particulars
₹ ₹

Sales @ ₹ 50 per unit 75,000 1,50,000

Cost ₹ ₹

Material 15,000 30,000

Labour 30,000 60,000

Productive Overhead 16,500 27,500

Administration Overhead 10,000 10,000

Selling Overhead 8,500 13,000

Total Cost 80,000 1,40,000

Calculate:

(a) BEP Sales (in volume and value)

(b) Budgeted net profit if 75% of the capacity is utilized in 2018
 (c) Number of units to be sold to earn a net profit of ₹ 25,000 and
(d) The amount of sales to be made to achieve a target profit of 10% on sales in 2018.

Solution

(a) Nature of cost determination

Particulars 2017 2018 Per unit cost

Unit Produced 75,000 1,50,000 -

= 1500 50
50
= 3,000

1.Material 15,000 30,000

15,000
= 10
1,500
30,000
= 10
3,000
2.Labour 30,000 60,000 30,000
= 20
1,500
60,000
= 20
3,000
3.Production 16,500 27,500 16,500
= 11
Overhead 1,500
27,500
= 9.17
3,000
4. Selling 8,500 13,000 8,500
Overhead = 5.67
1,500
13,000
= 4.33
3,000
5.Administration 10,000 10,000 Not Required
Overhead
 Decision:
1. Material Cost is fully variable = ₹ 10/- p.u.
2. Labour Cost is fully variable = ₹ 20/- p.u.
3. Production Overhead is Semi-Variable
2017 2018
1,500 units 3,000 units
₹ 16,500 ₹ 27,500
11,000
27,500−16,500
Variable Overhead = = = 7.33
3,000−1,500 1,500

Fixed Overhead = 16,500 – (1,500 x 7.33) = 5,500/-

4. Selling Overhead is Semi-Variable
2017 2018
1,500 units 3,000 units
₹8,500 ₹ 13,000
4,500 3
Variable Overhead = 13,000−8,500 = =₹
. 𝑢.
3,000−1,500 1,500 −𝑝

Fixed Overhead = 8,500 – (1,500 x 3) = ₹ 4,000

5. Administrative Overhead is fully fixed = ₹ 10,000/- Income

Statement

Particulars 2017 2018

Unit Produced 1,500 units 3,000 units

₹ ₹ ₹ ₹

Sales (1,500 x 50) 75,000

(3,000 x 50) 1,50,000

Less: Variable Cost

- Material (10 x 1,500) 15,000
(10 x 3,000) 30,000
 - Labour Cost (20 x 1,500) 30,000

(20 x 3,000) 60,000

- Production Overhead
(7.33 x 1,500) 11,000

(7.33 x 3,000) 22,000

- Selling Overhead
(3 x 1,500) 4,500

(3 x 3,000) 9,000
60,500 1,21,000

Contribution 14,500 29,000

Less: Fixed Cost
- Production Overhead 5,500
5,500
- Selling Overhead 4,000
4,000
- Administrative Overhead 10,000
10,000
19,500 19,500

(5,000) 9,500

P/V Ratio 𝐶 𝐶
𝑥 100 𝑥 100
𝑆 𝑆
14,500 29,000
= 75,000𝑥 100 = 1,50,000𝑥 100
= 19.33% = 19.33%

BEP 𝐹𝐶 19,500
= = 1,00,879.40
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜 19.33%

(b) 100% Capacity = 5,000 units

75% Capacity = (5,000

100 𝑥 75) = 3,750 𝑢𝑛𝑖𝑡𝑠
 𝐹𝐶+𝑃
Required Sale =
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜

19,500+𝑃
Or, (3,750 x 50) =
19.33%

Or, 36,243.7 = 19,500 + P

⸫ Profit = 36,243.7 – 19,500

= 16,743.7

(c) Required Sale = 𝐹𝐶+𝑃

19,500+25,000
𝑃𝑉 𝑅𝑎𝑡𝑖𝑜
= 19.33% = 2,30,212
Number of units to be sold = 2,30,212 = 4604.2 = 4605 𝑢𝑛𝑖𝑡𝑠(𝑎𝑝𝑝𝑟𝑜𝑥)
50

(d) Required Sale = 𝐹𝐶+𝑃

𝑃𝑉 𝑅𝑎𝑡𝑖𝑜

If Sale = X
⸫ Profit = X * 10% = 0.10X

𝐹𝐶+0.10𝑋
⸫X= 19.33%

Or, X * 19.33% = 19,500 + 0.10X Or,

X * 0.1933 = 19,500 + 0.10X Or,
0.1933X -0.1X = 19,500
Or, 0.0933X = 19,500
⸫ X = 2,09,003
⸫ Sale = ₹ 2,09,003