Problems on Marginal Costing: Limiting factor: Contribution: Raw Material, Labour and Sales as Limiting factor.

1. Case Study on Limiting Factor/Key Factor
Prof: Rohini S Udapudi
BLDEA’s College Jamkhandi.

2. The following particulars are extracted from the records of a
company.
Particulars Per Unit
Product A Product B
 Sales Rs 100 Rs 120
 Consumption of material 2 kg 3 kg
 Material Cost Rs 10 Rs 15
 Direct Wages Rs 15 Rs 10
 Direct Expenses Rs 5 Rs 6
 Overhead expenses:
Fixed Rs 5 Rs 6
Variable Rs 15 Rs 20
Comment on profitability of each product (both use same raw
material) when:
a) The Total Sales Potential in units is limited.
b) Total Sales Potential in value is limited.
c) Raw material is in short supply.

3. Statement showing Contribution
Particulars Product-A
per unit
(Rs) (Rs)
Product-B
per unit
(Rs) (Rs)
Sales Price 100 120
Less: Marginal Cost ( Total Variable Cost)
Material Cost 10 15
Direct Wages 15 10
Direct Expenses 5 6
Variable Overhead Expenses 15 -45 20 -51
1.Contribution p.u 55 69
2.P/V Ratio ( Contribution/Sales) 55% 57.5%
3. Less : Fixed Cost 5 50 10 59
4. Contribution p/kg of Raw Material (C / RM in kg) 27.5 23

4. CONCLUSION:
1.The total sales potential in units is limited.
->When sales potential in units is a key factor , Product B is
preferred as it yields more contribution per unit i.e. Rs. 69.
2. Total sales potential in value is limited.
-> When sales in rupee value is the limiting factor , the P/V Ratio
being higher for Product B
i.e. 57.5%. So, Product B is preferable.
3. Raw material is in short supply.
-> When raw material is a limiting factor , Product A is preferred as it
gives higher contribution of Rs. 27.5/kg of material.

5. From the following data which product would you recommend and
why to be manufactured in a factory, time being the key factor?
Particulars Per unit
Product-X Product-Y
Direct material 48 28
Direct labour 10 8
Overhead -- --
Variable Rs. 3 per hour -- --
Fixed 5 5
Selling price 150 100
Standard time to produce 3 hrs 4 hrs

6. Statement of Contribution and Profitability
Particulars Product-X
Per unit
Rs. Rs.
Product-Y
Per unit
Rs. Rs.
Selling Price (A) -- 150 -- 100
Less: Marginal Cost ( Variable Cost)
Direct Materials 48 28
Direct Labour 10 8
Variable overhead 9 12
Total Variable Cost (B) 67 48
Contribution ( A-B) 83 52
Standard time to produce 3hrs 4hrs
Contribution per Labour hour= contribution/ Labour hours 83/3 27.67 52/4 13
Profit (Contribution – Fixed Cost) 83-5 78 52-5 47

7. Conclusion:
1.If the time is the limiting factor, Product-X is
recommended.
2. Contribution of Product –X is Rs.83 p.u and Product –Y is
Rs.52 p.u. Therefore, Product - X
should be produced as its contribution per unit is more than
Product-Y.

8. THANKYOU…..