The document outlines marginal costing concepts and formulas, detailing calculations related to sales, variable costs, contributions, and profits. It provides examples of calculating break-even points, profit volume ratios, and required sales to achieve specific profit targets. Additionally, it discusses the impact of changes in costs and sales on profitability and presents exercises for practical application.

1. Marginal Costing – Problems &
Solutions

2. Marginal Costing Formulae
• Sales – Variable Cost = Contribution
• Contribution – Fixed Cost = Profit
• Sales – Variable Cost = Fixed Cost + Profit
• Profit Volume Ratio = Contribution / Sales
• Contribution = Sales * PV Ratio
• Sales = Contribution / PV Ratio
• BEP (in units) = Fixed Cost / Contribution per unit
• BEP (in rupees) = Fixed Cost / Contribution/Sales
• BEP (in rupees) = Fixed Cost / PV ratio
• Required Sales (in rupees) = Fixed Cost + Profit / PV ratio
• Required Sales (in units) = Fixed Cost + Profit / Contribution per unit
• Actual Sales = Fixed Cost + Profit / PV ratio
• Margin of safety (in rupees) = Actual Sales – BEP Sales
• Margin of safety (in units) = Actual Sales (units) – BEP Sales (units)
• Profit = Margin of safety * PV ratio

3. Ascertaining Missing figures
• CONTRIBUTION
• = Sales – Variable Cost
• = Fixed Cost + Profit
• = Sales * PV Ratio
• = (BE Sales in units * Contribution per units) + Profit
• = (BE Sales in value * PVR ) + Profit
• = Fixed Cost + (MS in units * Contribution per unit)
• = Fixed Cost + (MS in value * PVR)
• = Profit / MS in %
• = Fixed Cost / BE sales in%
• PROFIT VOLUME RATIO (PVR)
• = Sales - Variable Cost / Sales * 100
• = Contribution / Sales *100
• = Fixed Cost + Profit / Sales *100
• = Fixed Cost / BE Sales in value * 100
• = Fixed Cost / BE Sales in units *100 / Selling price per unit
• = Profit / Margin of safety in value *100
• = Profit / Margin of safety in units *100 / Selling price per unit
• = Change in profit / Change in sales *100
• = 100 – Variable cost to sales ratio

4. Ascertaining Missing figures
• BE SALES IN UNITS
• = Fixed Cost / Contribution per unit
• = BE Sales / Selling price
• = Fixed Cost / S.P. per unit – Variable cost P.U
• = Actual Sales per unit – Margin of safety in units
•
• BE SALES IN VALUE
• = Fixed Cost / PVR
• = Actual Sales in value – Margin of safety in value
• = Fixed Cost / Contribution per unit * Selling price per unit
• = BE Sales in units * Selling price per unit
• = Fixed Cost / 1- Variable Cost / Sales
• = Fixed Cost / % of Contribution to sales
•
• BE SALES IN % OF SALES
• = Fixed Cost / Contribution *100
• = BE Sales / Actual Sales *100
• = 100 – margin of safety (in %)

5. Ascertaining Missing figures
• MARGIN OF SAFETY IN UNITS
• = Profit / Contribution per unit
• = Actual Sales in units – BE Sales in units
• MARGIN OF SAFETY IN VALUE
• = Profit / PV Ratio
• = Actual Sales in value – BE Sales in value
• = Profit / Contribution per unit * Selling price per unit
• = Margin of Safety in units * Selling price per unit
• PROFIT
• = Sales – Total Cost
• = Sales – (Variable Cost + Fixed Cost)
• = Contribution – Fixed Cost
• = Margin of Safety in Value * PVR
• = Margin of Safety (% of sales) * Total Contribution
• = (Margin of Safety in % of Sales * Actual Sales) * PVR
• SALES
• = Total Cost + Profit
• = Variable Cost + Fixed Cost + Profit
• = Variable Cost + Contribution
• = Contribution / PV ratio * 100
• = BE Sales + Margin of Safety

6. QUESTION 1
The Acme Company produces and sells one
product. The revenue and cost structure of the
product is given below:
Particulars Amount in Rs.
Selling Price Per Unit 10.00
Variable Cost Per Unit 6.00
Total Fixed Cost per year 1,00,000
COMPUTE THE BREAK EVEN VOLUME
IN UNITS AND RUPEES

7. ANSWER 1
C per unis 4
C = S – V = 10 – 6 = 4
B.E.P.in Units 
Fixed Expenses

1,00,000
 25,000units
P.V .Ratio 
C
100 
4
100  40%
S 10
B.E.P.in Amount 
Fixed E x p e n s e s

1,00,000
 2,50,000
P / V Ratio
40%

8. QUESTION 2
Calculate break even point on the basis of the
following information supplied by a manufacturing
firm:
PARTICULARS AMOUNT IN
Rs.
ESTIMATED SALES 10,00,000
ESTIMATED VARIABLE COSTS 6,00,000
ESTIMATED FIXED COSTS 2,00,000

9. ANSWER 2
C = S – V = 10,00,000 – 6,00,000 =
4,00,000
P.V .Ratio 
C
100 
4,00,000
100  40%
S 10,00,000
B.E.P.in Amount 
Fixed Expenses

2,00,000
 5,00,000
P /V Ratio
40%

10. QUESTION 3
,000 Sales and
Fixed
Overh
production
eads for the
year amo was of 10,000
units.
unt to
20
Find:
i. Marginal Cost
ii. Contribution per
unit
iii. Variable cost
iv. Total Contribution
v. Net Profit
COST PER UNIT AMOUNT
(Rs.)
RAW MATERIALS 25
LABOUR 10
VARIABLE OVERHEADS 5
SELLING PRICE 50

11. Answer 3
1. Marginal Cost= Mat + Labour +Variable
Overheads = 25+10+5 = 40
2. Contribution per unit = S – M.C. = 50 – 40 =10
3. Total Variable Cost = 40 x 10,000 = 4,00,000
4. Total Contribution = C x Units = 10 x 10,000 =
1,00,000
5. Net Profit = Total Contribution – Fixed
Overhead = 1,00,000 – 20,000 = 80,000

12. QUESTON 4
the manufacture of 1,00,000 cycle
cts that due to
competi
tion they
This is based on s per annum. The
company expe will have to reduce
selling price, but they want to keep the total profits intact. What level of
production will have to be reached, i.e. how many cycles will have to be
manufactured to get the same amount of profit, if:-
i. The selling price is reduced by 10%
ii. The selling price is reduced by 20%
PARTICULARS AMOUNT
(Rs.)
MATERIALS 60
LABOUR 20
VARIABLE
OVERHEADS
20
FIXED OVERHEADS 50
PROFIT 50
SELLING PRICE 200

13. ANSWER 4
100
100
New S..P.after 20% Re duction  200 
80
160
Present Profit = 100000 x 50 =
50,00,000
Pr esent S.P. 200
New S.P.after 10% Re duction  200 
90
 180
60
1,00,00,000
cycles  1,66,667
Pr ofit 
F  P

50,00,000  50,00,000

1,00,00,000
 1,25,000 cycles
C
80 80
Re quired Sales to earn same amount of
C  S V 160 100  60
C  S V  180 100  80

14. QUESTION 5
Given the following figures:
mpact of the following changes on br
Show the i eak even point:
i. Fixed Cost increase by 5,000 Rs.
ii. Decrease in Fixed Costs by 4,000 Rs.
iii. 20% increase in variable cost
iv. Fixed Cost increase by 20% and variable costs decreased by
10%
PARTICULARS AMOUN T
(Rs.)
FIXED COSTS 16,000
SELLING PRICE PER
UNIT
8
VARIABLE COST PER
UNIT
5

15. Answer 5
Effect of increase in Fixed Costs by 5,000, Now
Total Fixed Expenses = 16,000+5,000 = 21,000
C 3
Pr esent B. E. P.inUnits 
F

16,000

5,333units
New B. E. P.inUnits 
F

2 1 , 0 0 0
 7,000units
Effect of decrease in FCixed C3ost by 4,000 , Now
Fixed
Expenses =16,000 -4,000 = 12,000
New B. E. P.inUnits 
F

12,000

4,000units
C 3

16. Contd.
Effect of increase in variable cost by
20%
V.C. = 5 + 1 = 6 , New C will be 8 – 6 = 2
New B. E. P.inUnits 
F

16,000

8,000units
C
2

17. QUESTION 6
The total cost and profits during two period were as follows:
Calculate:
i. P/V Ratio
ii. Break Even Sales
iii. Sales required to earn a profit of 1,25,000 Rs.
iv. Profit earned when sales are 3,50,000 Rs.
PARTICULARS PERIOD –I PERIOD – II
AMOUNT AMOUNT
TOTAL COST 4,50,000 6,50,000
PROFIT 50,000 1,00,000

18. Answer 6
250000
50000
100  20%
Change in Sales
P / V Ratio 
Change in Pr ofit
100 
Fixed Expenses  Sales  P /V Ratio  Pr ofit  5,00,000  20%  50000 
50,000

5 0 0 0 0
 2,50,000
P / V Ratio 20%
F
B.E.P.Sale 
Sales to earna Pr ofit 1,25,000 
Fixed Expenses  Desired Pr ofit

50,000 1,25,000
 8,75,000
P /V Ratio
20%
Pr ofit when Sales are 3,50,000 
Pr ofit (Sales P /VRatio )  Fixed Cost  3,50,000  20%  50,000  20,000

19. QUESTION7
XY Co. Sold in two successive years 7,000 and
9,000 units and incurred a loss of 10,000 Rs.
and earned 10,000 as profit respectively. The
selling price per unit is 100 Rs.
Calculate (a) the amount of fixed costs, (b) the
number of units to break even, and (c) the
number of units to earn a profit of 50,000 Rs.

20. ANSWER 7
100  10%
P / V Ratio 
Change in Pr ofit
 1 0 0 
20,000
Change in Sales
2,00,000
The amount of Fixed Cost:
Contribution of First Year 10% of 7,00,000 = 70,000 + Loss during
the year 10,000 = 80,000
B.E.P. 
Fixed Cost

80,000
8,00,000
P /V Ratio 10%
B.E.P.in Units 
Total Sales

8,00,000
8,000units
S.P. per unit 100

21. Contd.
Re quired Sales 
Fixed Cost  Desired Pr ofit

80,000  50,000
 13,00,000
P / V Ratio
10%
B.E.P.in Units 
Total Sales

13,00,000
13,000units
S.P. per unit 100

22. Question 8
100
•  Fixed Expenses = 20,000, Variable Cost
per unit 10, Selling Price Unit = 20,
Calculate profit when sales will be
2,00,000.
•Answer
• P /V Ratio 
C
100 
10
100  50%
• S 20
• Pr ofit  (Sales  P /VRatio )  Fixed Expenses
 2,00,000 
50
 20,000  80,000

23. Question10
Fixed Expenses = 20,000, Variable Cost per unit
10, Selling Price Unit = 20, Calculate the
required sales if profit target of Rs. 60,000 has
been budgeted.

24. Answer 10
10
C  S V  20 10  10
Re quired Sales to earn 60,000 amount ofPr ofit 
F  P

20,000  60,00,000

C
10
80,000
 8000 units
50
80,000
X100  1,60,000
F  P

20,000  60,00,000

P /V Ratio 50%
Re quired Sales to earn 60000 amount of Pr ofit

C  S V  20 10  10
P /V Ratio  C / S X 100 10 / 20 X 100 
50%

25. Problem
From the following particulars, you are required to calculate :
(i) P/V Ratio
(ii) BEP for sales;
(iii) Margin of Safety;
(iv) Profit when sales are Rs.2,00,000/-
(v) Sales required to earn a profit of Rs.40,000/-
Year Sales Profit
I Rs. 2,40,000 18,000
II Rs. 2,80,000 26,000
You may make possible assumptions. Also evaluate the effect
on II year’s profit of
(a ) 20% decrease in sales quantity.
(b) 20% decrease in sales quantity accompanied by 10%
increase in sales price and reduction of
Rs. 3,500/- in fixed costs

26. Solution
(1) P/V Ratio
In year 2, additional NP which means additional contribution 8,000
Additional sales 40,000
P/V Ratio 20%
(2) BEP
Fixed cost = Contribution – NP
= (2,40,000 * 20%) – 18,000 48,000 – 18000 30,000
BEP = FC/PV Ratio 30,000/0.20 =1,50,000
(3) Margin of Safety
Year 1 2,40,000 – 1,50,000= 90,000
Year 2 2,80,000 – 1,50,000 =1,30,000
(4) Net Profit
(Contribution*PV Ratio) – Fixed Cost (2,00,000 * 20%) – 30,000= 10,000
OR
Cap Sales 2,00,000
(-) BEP 1,50,000
Margin of Safety 50,000
(-) PV Ratio 20%
NP =10,000

27. 5) Sales Required 100/20 ( 30,000(FC) + 40,000(NP)) = 3,50,000
or BEP 1,50,000
Margin of Safety Req (100/20*40,000) 2,00,000
Sales Required 3,50,000
(6)
a) 20% decrease in sale Qty
Reduction in Contribution & in net profit 20% *(2,80,000*20%)
20% (56,000)
Reduction in Contribution & in net profit Rs.11,200
(b) Revenue Sales ( 2,80,000*80%) *110% 2,46,400
(-) Revenue Cost (2,80,000*80%) * 80% 1,79,200
Revenue contribution 67,200
(-) Revenue Fixed Cost (26,500)
Revenue NP 40,700
(-) Given NP(26,000)
Increase in NP=14,700

28. ILLUSTRATION
Ǫ A company is producing a single article and sells
at Rs. 30/- each. The Marginal cost of production
is Rs. 24/- each and fixed cost are Rs. 11,000/
per quarter. Find out
1. Profit Volume Ratio
2. Break even sales in value and volume
3. Sales required to earn a profit of Rs. 15,000
4. Profit at sales of R. 5,00,000
5. Margin of safety for (3) and (4) above

29. Ḁ We know, PV ratio = Contribution/Sales or
= Contrb p.u/Selling P.u
In the given problem, they have given us Selling
price p.u and Marginal cost p.u.
Contrb p.u = Selling price p.u – Marginal cost p.u
= 30 – 24 = 6
Now PV Ratio = (6/30)*100 = 20%

30. In order to Calculate Break even Sales : Value
and volume we know
BEP (Sales) = Fixed cost/PV Ratio
= 44,000/.20 = Rs. 2,20,000
Fixed Cost = 11000 per quarter i.e for whole year
(11000*4) = 44,000
BEP (Volume/Qty) = Fixed cost/Contrb p.u
= 44,000/6 = 7,333 Units

31. In order to find out the desired sales revenue so
that a profit of Rs. 15,000 can be earned
= (Fixed cost + Desired profit )/ P/V Ratio
= (44,000 +15,000)/.20 = Rs. 2,95,000
If you are asked to find Sales Volume
(Qty) : can be found out either by dividing
the Sales revenue by Selling price
(2,95,000/30 = 9833 units ) or using the
above formula i,e (FC+P)/Contrib p.u
= (44,000+15000)/6 = 9833
units

32. Profit at Sales of Rs. 5,00,000.
We know PV Ratio = 20% hence
contribution = 5,00,000*.20 = 1,00,000
Fixed Cost = 44,000
PROFIT = 56,000 (Contr – FC)
Margin of Safety = Actual Sales – Break even sales
 MOS (Value)
when Sales Rs. 2,95,000 = 2,95,000 – 2,20,000 = 75,000
 MOS (Value)
When Sales Rs. 5,00,000 = 5,00,000 – 2,20,000 = 2,80,000

33. Ǫ A company gives you the following
information for a financial year. You are
required to find out :
1. P V Ratio
2. Fixed cost
3. Profit or loss where sales are Rs. 8,20,000
4. Sales required to earn a profit of 2,80,000
First 6 months Later 6 months
Sales 12,20,000 15,40,000
Profit earned 62,400 1,58,400

34. Ḁ In this problem in order to find out P V Ratio
no information of Variable cost is give, instead
comparison for two periods are given, hence
PV Ratio = Change in Profit/Change in Sales
= (1,58,400 – 62,400)
(15,40,000 – 12,20,000)
= 0.3 or 30 %
Fixed cost = Contribution – Profit
= (15,40,000 *.30) – 1,58,400
= Rs. 3,03,600 Fixed cost
remains fixed for
the two level of
activity.

35. Profit or Loss at Sales of Rs. 8,20,000
Contribution = (8,20,000*. 30) = 2,46,000
Less : Fixed cost = 3,03,600
LOSS = (57,600)
Sales required to earn Profit of Rs. 2,80,000
= (FC + P)/PV ratio
= (3,03,600 + 2,80,000)/ .30
= 19,45,333 ~ 19,45,000

36. Ǫ The following budget estimates are given to
you for a financial year - Find
1. PV Ratio, BEP and MOS
2. Calculate the revised PV Ratio, BE and MOS if
a) Selling price is decreased by 10%
b) Variable cost increases by 10%
c) Sales volume increases by 2000 units
d) Fixed cost increases by 6,000
Sales (Units) 15,000
Fixed Expenses Rs. 34,000
Sales Value Rs, 1,50,000
Variable costs Rs. 6 p.u

37. PV Ratio = Contribution/Sales
Contribution : Sale Value = 1,50,000
Less : Variable Cost ( 15,000 units*6 p.u) = 90,000
Contribution = 60,000
PV Ratio = 60,000/ 1,50,000 = 40%
 BEP = FC/PV Ratio = 34,000/.40 = Rs. 85,000
 MOS = Act Sales – BE Sales = 1,50,000 – 85,000
= Rs. 65,000

38. Selling Price
decrease by 10%
Current
Selling Price
1,50,000/15000 =
Rs. 10.p.u
Revised
Selling price
10*.10 = 9 p.u
Revised
contribution
p.u
9 – 6 = 3
Revised P V
Ratio
(3/9)* 100 =
33.33%
BEQ =34,000/3
= 11,333 units
BE sales =11,333 * 9
= 1,02,000
MOS & MOS
(Value)
= 15,000 – 11,333
= 3667 units * 9 =
Rs.33,003
Variable Cost
increases by 10%
Revised
Variable cost
= 6*.10 = 6.60 p.u
Revised
Contribution
10 – 6.6 = 3.4 p.u
Revised P V
Ration
= 3.4 /10 = 34%
BE Q =34,000/3.4
= 10000 units
BE Sales =10,000 * 10
= 1,00,000
MOS & MOS
(Value)
= 15,000 – 10000 =
5,000 units * 10 =
50,000

39. Increase in Sales
volume by 2,000
units
Revised
Sales units
15,000 +2,000 =
17,000 units
Revised P V
Ratio
=4/10 = 40%
BEQ 34,000/4 = 8,500
units
BESales = 8,500 * 10 =
85,000
MOS (Q) 17,000 – 8,500 =
8,500 units
MOS
(Value)
= 8,500 * 10 =
85,000
Increase of Rs.
6,000 in Fixed
costs
Revised P V
Ratio
= 4/.10 = 40%
Revised
Fixed Cost
=34,000+6,000
= 40,000
BEQ = 40,000/4
= 10,000 units
BESales = 10,000 * 10
= 1,00,000
MOS(Q) = 15,000 – 10,000
= 5,000
MOS (V) = 5,000 *10
= 50,000

40. Ǫ A company has fixed cost of Rs.1,30,000, Sales Rs.
4,50,000 and Profit of Rs. 50,000. Required:
(i) Sales volume if in the next period, the company
suffered a loss of Rs.15,000.
(ii) What is the margin of safety for a profit of
Rs.70,000?
Ḁ In order to find the sales volume - from the data
given first we need to find the P V ratio. In order to
find the PV ratio we need contribution. In the
problem sales, fixed cost and Profit figures are
given so contribution can be calculated as follows:

41. Sales = 4,50,000
Less: Profit = 50,000
COGS = 4,00,000
Less Fixed cost = 1,30,000
VARIABLE COST = 2,70,000
P V Ratio = 1,80,000/ 4,50,000 = 40%
Desired Sales = 1,30,000 – 15000 (Loss)/.40
= Rs. 2,87,500
therefore Contribution
Sales = 4,50,000
Less : Variable cost = 2,70,000
CONTRIBUTION = 1,80,000

42. MOS for a profit of Rs. 70,000
Desired Sale at Profit of 70,000
= (1,30,000 + 70,000)/.40
= 5,00,000
Break even sales = 1,30,000/.40 = 3,25,000
Therefore MOS = 5,00,000 – 3,25,000
= 1,75,000
Alternatively, MOS = Profit/PV
Ratio
= 70,000/.40
= 1,75,000

43. Ǫ The ratio of variable cost to sales is 60%. The
break-even point occurs at 80% of the capacity
sales.
(i) Find the capacity sales when fixed costs are `
1,60,000
(ii) Compute profit at 80% of the capacity sales.
(iii)Find profit if sales is Rs.5,70,000 and fixed
cost remain same as above.
(iv)Find sales, if desired profit is Rs.44,000, and
fixed cost is Rs.1,42,000.

44. Given, Ratio of variable cost to sales = 60%
This means P V Ratio = 40%
 BE Sales : when FC = 1,60,000
= 1,60,000/.40 =Rs. 4,00,000
We know BEP occurs at 80% capacity sales
Therefore, if 80% sales = 4,00,000
100% = ?
Therefore Sales when FC 1,60,000 = 5,00,000

45.  Profit at 80% capacity sales
It is already given that BEP occurs at 80%
capacity sales. Hence Profit at 80% capacity
sales will be NIL. As at the BEP Costs = Revenue
 Profit for sales of 5,70,000 and FC = 1,60,000
Variable cost (60% of 5,70,000) = 3,42,000
Fixed Cost = 1,60,000
Total Cost = 5,02,000
Sales = 5,70,000
PROFIT = 68,000

46. Sales, if desired profit is Rs. 44,000, and fixed
cost is Rs. 1,42,000
Desired Sales = (FC + P)/PV Ratio
= (1,42,000+44,000)/.40
= Rs. 4,65,000
Note : PV Ratio does not change
with the change in the FC or
sales value.

47. Ǫ If margin of safety is Rs 2, 40,000 (40% of sales) and
P/V ratio is 30% of Gupta Ltd, calculate its
(1) Break even sales, and
(2) Amount of profit on sales of ` 9,00,000.
 Margin of safety = Total sales – Besales
Given MOS = 2,40,000 which is 40% of sales
Therefore, Total Sales (100%) = ?
TOTAL Sales = Rs. 6,00,000
Therefore BES = Total Sales – MOS
= 6,00,000 – 2,40,000
= Rs. 3,60,000

48.  Amount of profit on sales of ` 9,00,000.
Given PV Ratio = 30%
P V Ratio =( Contribution/Sales )* 100
there for Contribution = Sales * PV Ratio
= 6,00,000 * .30
= 1,80,000
We have already found that BE Sales = 3,60,000
Therefore BE Sales = FC/PV Ratio
FC = 1,08,000
Now, Desired Sales =( FC + Profit)/PV Ratio
9,00,000= (1,08,000+ P)/.30
Profit = 1,62,000

49. Ǫ A company has fixed cost Rs. 1,00,000 and Sales 2,50,000
with Profits at 60,000
1. Calculate the MO Safety for Profit of Rs. 1,00,000
2. Also find the sales volume if in the subsequent
period the company is expected to suffer a loss
of 30,000
 MOS = Total Sales – Break even Sales
BE Sales =FC/PV Ratio
PV Ratio = 1,60,000/2,50,000 = 64%
BE Sales = 1,00,000/.64 = Rs. 1,56,250
Total Sales = (1,00,000+1,00,000)/.64 = Rs. 3,12,500
MOS = 3,12,500 – 1,56,250 = 1,56,250
Contribution = Profit+
FC
= 60,000 +
1,00,000
= 1,60,000

50. Sales volume if in the subsequent period the
company is expected to suffer a loss of 30,000
Sales = (FC + Profit )/PV Ratio
= (1,00,000 – 30,000)/.64
= Rs. 1,09,375

51. Ǫ Product P has a PV ratio of 25%. Fixed
Operating costs directly attributable to
product P during the quarter 1 of the financial
year is Rs, 2,50,000. Calculate the sales
required to earn a quarterly profit of Rs.
80,000.
 Sales = (2,50,000 + 80,000)/.25
= 13,20,000