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- 1. Cost-Volume-Profit Relationship <ul><li>Nature of relationship </li></ul><ul><ul><ul><ul><li> Linear </li></ul></ul></ul></ul><ul><li>Assumptions under this concept are as follows- </li></ul><ul><ul><li>Costs are classified under fixed and variable costs. </li></ul></ul><ul><ul><li>Selling price remains constant. </li></ul></ul><ul><ul><li>Only one product is manufactured. </li></ul></ul>
- 4. What is Marginal Cost? <ul><li>“ The amount at any given volume of output by which aggregate costs are changed if the volume of output is increased or decreased by one unit” ICMA, London </li></ul><ul><li>“ The ascertainment of marginal costs and of the effect on profit or changes in volume or type of output by differentiating between fixed costs and variable costs” ICMA, London </li></ul>
- 5. Characteristics of Marginal costing <ul><li>Difference between product and period cost. </li></ul><ul><li>Considered only those manufacturing costs that are dependant on the production volume. </li></ul><ul><li>Prices are determined by adding the contribution with the marginal cost. </li></ul><ul><li>It is helpful in decision-making. </li></ul>
- 6. llustration <ul><li>Arrive at the marginal cost from the following information . </li></ul>2,90,000 = Total Cost 2,50,000 +(200 × 200) = Rs. 2,50,000 = Fixed Cost Rs. 200/- unit. = Variable Cost 200 = No. of units produced
- 7. <ul><li>If we increase the number of units to 201 , the variable costs will be = 201 × 200 = 40,200 </li></ul>Rs. 200/- = 290200-290000 = Marginal Cost 290200 = 40200+ 250000 = Therefore, the total cost
- 10. Break Even Analysis
- 11. Traditional Break Even Chart
- 12. Contribution Break Even chart
- 13. Mathematical representation of BEP <ul><li>Mathematically B.E.P. can be calculated by using the following formulae:- </li></ul><ul><li>BEP(Units) = (Fixed cost) / (Selling price per unit – Variable cost per unit) </li></ul><ul><li>or </li></ul><ul><li> (Fixed cost) / (Contribution per unit) </li></ul><ul><li>or </li></ul><ul><li> (Break-even sales (Rs) / (Selling price per unit) </li></ul><ul><li>BEP (Rs) = (Fixed costs × Sales) / (Sales – Variable cost) </li></ul><ul><li>or </li></ul><ul><li>(Fixed cost × selling price per unit) / (Selling price per unit- variable cost per unit) </li></ul><ul><li>or </li></ul><ul><li> (Fixed cost × selling price per unit) / (contribution per unit) </li></ul><ul><li> or </li></ul><ul><li> Fixed cost/ PV ratio </li></ul>
- 14. Illustration <ul><li>Output: 6000 units </li></ul><ul><li>Selling price per unit Rs.40 </li></ul><ul><li>Variable cost per unit Rs.30 </li></ul><ul><li>Total Fixed cost Rs.25000 </li></ul><ul><li>From the above information, calculate the break-even point in units and sales value </li></ul>

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