3. News
• No easy rides: Why is India
becoming a graveyard for
world's auto majors?
4. • India is a market for low-priced cars with low running costs.
The global majors don't have models that fit the bill; only
Maruti and Hyundai have successful entry-level models,
writes T N Ninan
• If you leave out Hyundai, which has become a bigger car
manufacturer than Ford and General Motors (by numbers,
not value), the top four global makers of automobiles
command barely 6 per cent of the Indian passenger vehicle
market. Among them, General Motors (GM) left India four
years ago. Ford’s announced exit now will make little
difference since it has less than 2 per cent of the market.
• And the global No. 1 (Volkswagen), together with its Skoda
subsidiary, has barely 1 per cent. Of the big four, Toyota has
been the most successful, but has barely 3 per cent of the
market.
5. News
• Nipah outbreak: Karnataka to keep close eye on arrivals
from Kerala
• On September 7, the Karnataka government had directed
administrations of districts bordering Kerala to strengthen
surveillance and preparedness after the first confirmed
case of Nipah virus was reported in the state.
• The Karnataka government said on Sunday individuals
coming from Kerala will be kept under surveillance as the
double whammy of coronavirus and Nipah continues to
keep the neighbouring state on its toes. Surveillance has
also been intensified in districts bordering Kerala, a senior
official said.
6. News
• Surprise Candidate Bhupendra Patel Is New Chief
Minister Of Gujarat
• Vijay Rupani stepped down without citing any reason --
a move that came as a surprise to many.
•
Senior BJP leader Bhupendra Patel -- known to be a
protege of former Chief Minister Anandiben Patel --
will succeed Vijay Rupani as the Chief Minister of
Gujarat. While he was elected the leader of the
legislature party after a meeting, it is believed that the
he was the choice of Prime Minister Narendra Modi
and Union Minister Amit Shah.
8. Introduction
Marginal cost is nothing but a change occurred
in the total cost due to changes taken place on
the level of production i.e either an
increase/decrease by one unit of product.
Fixed manufacturing costs are not allotted to
products but are considered as period costs and
thus charged directly to Profit and Loss
account of the year.
Fixed cost also do not enter inventory
valuation.
12. Definition of Marginal costing
According to ICMA, London “Marginal cost is
the amount at any given volume of output, by
which aggregate costs are charged, if the
volume of output is increased or decreased by
one unit.”
Basically, it is the additional cost of producing
an additional unit of product. It is the total of all
direct and variable costs.
13. MCQ
• Which of the following statements are true?
A) Marginal costing is not an independent system of costing.
B) In marginal costing all elements of cost are divided into
fixed and variable components.
C) In marginal costing fixed costs are treated as product cost.
D) Marginal costing is not a technique of cost analysis.
a) A and B
b) B and C
c) A and D
d) B and D
14. MCQ
• Which of the following statements are true?
A) Marginal costing is not an independent system of costing.
B) In marginal costing all elements of cost are divided into
fixed and variable components.
C) In marginal costing fixed costs are treated as product cost.
D) Marginal costing is not a technique of cost analysis.
a) A and B
b) B and C
c) A and D
d) B and D
16. MCQ
• The technique of marginal costing is based on
classification of cost into ------
• A. Period and Product Cost
• B. Fixed and Variable Cost
• C. Variable and Semi-variable Cost
• D. None of these
17. MCQ
• The technique of marginal costing is based on
classification of cost into ------
• A. Period and Product Cost
• B. Fixed and Variable Cost
• C. Variable and Semi-variable Cost
• D. None of these
18. Practical Example
The firm XYZ Ltd. incurs ` 1000 for the production
of 100 units at one level of operation. By increasing
only one unit of product i.e. 101 units, the firm’s
total cost of production amounted ` 1010.
Total cost of production at first instance (C’) = `
1000 Total cost of production at second instance
(C”) = ` 1010 Total number of units during the first
instance (U’) = 100 Total number of units during the
second instance (U”) = 101
19. Marginal Cost Calculation
Change in the level of units = U’’-U’= 101-100= 1
Change in the cost = C”-C’ = 1010-1000= 10
Therefore, Marginal Cost = Change in total cost/
Change in units = 10/1= Rs.10
Marginal cost is nothing but a cost which
incorporates the incremental changes in the cost of
production due to either an increase or decrease in
the level of production by one unit, meant as
incremental cost.
20. MCQ
• ABC Ltd. is incurring 5500 on producing100
chocolates in company. The total cost rose to
6700 after increasing production of chocolate
by one unit, then marginal cost will be
A. 1000
B. 1200
C. 1300
D. 1500
21. MCQ
• ABC Ltd. is incurring 5500 on producing100
chocolates in company. The total cost rose to
6700 after increasing production of chocolate
by one unit, then marginal cost will be
A. 1000
B. 1200
C. 1300
D. 1500
22. Importance
•Easy to operate and
simple to understand.
useful in profit
planning
useful in decision
making about fixation
of selling price, make
or buy decision
Break even analysis
and P/V ratio are
useful techniques
provides control over
variable cost.
Evaluation of different
departments is
possible
•Fixed overhead
recovery rate is easy.
23. Contribution
It is the difference between sales and marginal (variable)
cost of sales also known as contribution or gross margin.
Thus, it is calculated as:
Contribution = Sales – Variable cost
The costs are classified into two categories viz. fixed and
variable cost. Variable cost per unit is considered as marginal
cost of the product. Fixed costs are charged against
contribution of the transaction.
Therefore, Selling price of the product = marginal cost +
contribution.
Contribution
Method of Difference= Sales - Variable Cost Method of
Meeting = Fixed cost + Profit
25. Practical Example
• Example: Sales ` 100,000, variable cost `
50,000/- and fixed cost ` 20,000 find out the
contribution and profit.
Sales 1,00,000
Variable Cost (-) 50,000
Contribution 50,000
Fixed Cost (-)20,000
Profit 30,000
26. Contribution and Marginal Cost Equation
C = S-V…(i)
C = F+P…(ii)
C = F-L…..(iii)
From this, S-V= F+P
If any of the three out of four are known, the fourth
can be known:
P=S-V-F
P=C-F
F=C-P
V=S-F-P
27. Sales =12000, variable cost=7000,
fixed cost=4000
• Thus, C=S-V (12000-7000) =5000
• P= C-F (5000-4000) =1000
Thus, profit= 1000
i. If sales not given, but contribution is given
S= 5000 +7000= 12000
i. If fixed cost is not given, but profit is given
F= 5000-1000= 4000
i. If variable cost is not given, but sales is given
V= S-C (12000-5000) = 7000
28. Break Even Analysis
Break even analysis is widely used technique to
study the CVP relationship. It is interpreted in
narrow as well as broad sense.
In its narrow sense, break even analysis is
concerned with determining break-even point, i.e.
that level of production and sales where there is no
profit and no loss. At this point, total cost is equal to
total sales revenue.
.
29. Break Even Analysis
• When used in broader sense, it is used to
determine probable profit/loss at any given
level of production/sales. It is also used to
determine the amount of sales to earn a desired
amount of profit
30. Assumptions of Break Even Analysis
1. All costs can be separated into fixed and
variable components.
2. Variable cost per unit remains constant and
total variable cost varies in direct proportion to
the volume of production.
3. Total fixed cost remains constant.
31. Assumptions of Break Even Analysis
4. Selling price per unit do not change with
volume.
5. There is only one product mix.
6. Volume of production equal to volume of
sales.
7. Productivity per worker do not change.
8. There will be no change in general price level.
32. Calculation of Break even point
1. Break even point (in units) = Total fixed
cost/Contribution per unit (F/S-V)
2. Break even point (in rupees)= Total fixed
cost/contribution *sales (F*S/S-V)
33. Practical Example
• Total fixed cost= 12000
• Selling price= Rs12 per unit
• Variable cost = Rs9 per unit
Solution:
(i) Contribution= S-V= 12-9= Rs.3 per unit
(ii) P/V ratio= C/S*100= 3/12*100= 25%
(iii) Break even point (in units) = F/C
= 12000/3= 4000 units
Break even point (in rupees) = F/C*sales
=12000/3*12 = Rs. 48000
34. MCQ
• Period cost is associated with
• A. Fixed Cost
• B. Variable Cost
• C. Prime Cost
• D. None of these
35. MCQ
• Period cost is associated with
• A. Fixed Cost
• B. Variable Cost
• C. Prime Cost
• D. None of these
36. Marginal Costing and Absorption
Costing
• Marginal costing is also known as variable costing or
direct costing. Under this technique, only variable costs
are charged as product costs and included in inventory
valuation. Fixed manufacturing costs are not allotted to
products but are considered as period costs and charged
directly to costing profit and loss account of that year.
Fixed costs also do not enter in stock valuation.
• Absorption costing is a total cost technique under
which total cost (i.e., fixed cost as well as variable cost)
is charged as production cost. In other words, all
manufacturing costs are absorbed in the cost of the
products produced. It is a traditional approach and is
also known as conventional costing or full costing.
