Meaning, features, Nature, and all formulas of BEP, PV etc..,

1. UNIT 5 (A)
MARGINAL COSTING

2. SYLLABUS
Marginal Costing: Meaning, Features and
Assumptions - Calculation of Break Even Point
– Equation Method, Graphic Method,
Problems

3. EXAM POINT OF VIEW
2 MARKS 1 (T)
6 MARKS 1 (p)
14 MARKS 1 (p)

4. INTRODUCTION
 TYPES OF COST:
 A. FIXED FOR A GIVN PERIOD OF TIME (OFFICE RENT,FACTORY
RENT,MANAGER SALARY)
 B.VARIABLE (RAW MATERIAL,POWER,COMMISION AS [ERCENTAGE OF
SALES)

5. WE CAN SEE IN 2 PRESPECTIVE
 . ECONOMIC POINTS
 COST INCURED IN PRODUCTION OF ADDITIONAL UNIT OF PRODUCT
 SUPPOSE YOU WERE PRODUCING 10000 MEANS NOW YOU HAVE
PALNNED TO GIVE 10100 PRODUCTS
 SO WAT IS THE EXRA UNIT
 100
 SO TO PRODUCE THE 100 EXTRA WHAT COST YOU INCURRED

6. ACCOUNTANT POINT OF VIEW
 TOTAL COST OF PRIME COST + VARIABLE COST.
 OR
 TOTAL COST OTHER THAN FIXED COST

7. EXAMPLE

8. DEFINATION
ACCORDING TO CHARTERED INSTITUTE OF
MANAGEMENTACCONTANT (CIMA) DEFINES Marginal costing
cost “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

9. According to J batty : Marginal
Costing is a technique of cost
accounting which pays special
attention to the behavior of cost with
changes in volume of output.

10. features
1. Segregation of cost into fixed and variable
2. Marginal cst as product cost
3. Valuation of inventory
4. Contribution

11. format
particulars amount
Sales
(-) variable cost
Contribution
(-) Fixed cost
Profit
XXXXX
XXXX
XXXX
XXX
XXXX

12. COST – VOLUME PROFIT ANALYSIS
 EVERY COMPANY MUST EARN PROFIT TO STAY IN BUSINES
 CVP WILL HELP MANAGEMENT IN PROFIT PLANNING
 MANAGER MAKE VARIOUS PLANS TO EARN A MORE PROFIT.
 FOR EX: HOW MANY UNITS OF PRODUCTS SHOULD BE SOLD IF I WANT
TO EARN RS 250000
 EX IF SELLS 100000 UNITS WHAT WILL BE THE AMOUNT OF PROFIT

13. 3 POWERFUL TOOLS
 COST OF PRODUCTION
 VOLUME OF PRODUCTION OF SALE
 PROFIT

14. DEFINITION
ACCORDING TO CIMA: HAS DEFINED CVP
ANALYSIS “THE STUDY OF THE EFFECTS ON
FUTURE PROFITS OF CHANGES IN FIXED
COST, VARIABLE COST,SALES PRICE,QUATITY
AND MIX.

15. PROFIT- VOLUME RATIO
 IT IS MOST IMPORTANT RATIO TO WATCH IN BUSINESS
 IT AS AN INDICATOR
 A HIGH P/V RATIO NDICATES HIGH PROFITABILIT IN THE BUSINESS
 DIFFERENT SECTIONS OF THE BUSINESS SUCH AS SALES AREA,CLASSES
OF CUSTOMER,PRODUCT LINES,METHIDS OF PRODUCTIONS,ETC…, MAY
ALSO BE COMPARED WITH THE HELP OF PROFIT VOLUME ATIO.

16. THE Profit volume ratio is also used in
making following type of calculations
 Calculation of break even point
 Calculation of profit at a given level of sales
 Calculation of volume of sales required to earn given profit.
 Calculation of profit when Margin of safety is given
 Calculation of the volume of sales required to maintain the present level of
profit if selling price is reduced.

17. formulae
 I Profit volume ratio: contribution *100
sales
=sales – variable cost *100
sales
=FC+ profit * 100
sales

18.  II P V ratio:
Changes in contribution * 100
Changes in sales
Or
Change in profit * 100
changes in sales

19. BREAK EVEN POINT
BEP IS A VOLUME OF OUTPUT OR SALES AT WHICH
TOTAL COST IS EXACTLY EQUAL TO SALES.

20. METHOD
Equati on
Graphi c Repres entation

21. FORMULAE
1. BEP IN UNIT: 2. BEP IN RUPEES


22. SUMS:3

23. ADDITIONAL CONDITIONS

24. Margin of safety
It may be defined as the difference
between actual sales and sales at break
even point. In other words, it is the
amount by which actual volume of sales
exceeds the break even point.

25. FORMULAE
 =ACTUAL SALES-BREAK EVEN POINTS
OR
=MARGIN OF SAFETY= PROFIT/P V RATIO

26. EXAMPLE
PARTICULARS COMPANY X COMPANY Y
ACTUAL SALES 120000 60000
- B E P 40000 4000
MOS 80000 20000
MOS AS A % OF SALES 80000/120000 20000/60000
66.23% 33%

27. OTHER IMPORTANT FORMULAES

28. WHEN MARGIN OF Safety is satisfactory, the
following steps may be taken
 Increase the volume of sales
 Increase the selling price
 Reduce the Fixed Cost
 Reduce Variable Cost
 Changing Product Mix.