Marginal Costing
Breakeven Analysis/Cost Volume Profit Analysis
Marginal Cost Statement
Sales xxx
Less: Variable Cost xxx
Contribution xxx
Less: Fixed Cost xxx
Profit/Loss xxx
1. Marginal cost equation
Sales-Variable Cost = Fixed cost+ Profit
Sales-Variable Cost = Contribution
Contribution = Fixed cost+ Profit
2. Profit Volume Ratio
P/V = (Contribution/Sales) x 100
P/V = ((Sales-Variable Cost)/Sales) x 100
If Sales &Profit-two Periods are given
P/V = (Change in Profit/Change in Sales) x 100
3. Break-even point
a) Break even volume(units) =Fixed cost/Contribution per unit (or)
Break even sales/Selling price per unit
b) Break even volume (in Rupees) = Fixed cost/PV Ratio (or)
= Break Even Volume x Selling Price per unit
4. Margin of safety =Actual Sales-Break even sale
(In Rs.) =Profit/PV Ratio
(In Units) = Profit/ Contribution per unit
5. Required sales for given profit
Required sales in units= (Required profit +Fixed cost)/Contribution per unit
Required sales value in Rs = (Required profit +Fixed cost) / PV Ratio
6. Profit from given sales
Contribution = Given sales x PV Ratio (or) Profit = Contribution - Fixed cost
Breakeven Analysis/Cost Volume Profit Analysis – Problems
1.a. Calculate Break-even point from the following
Sales 1000 units at Rs.10 each Rs.10000
Variable cost-Rs.6 per unit
Fixed cost-Rs.8000
b. If the selling price is reduced to Rs.9, what is the new break-even point?
[Link] Ltd. Presents the following results for one year. Calculate the PV ratio, BEP and
Margin of safety
Sales Rs.200000
Variable cost Rs.120000
Fixed cost Rs.50000
Net profit Rs.30000
[Link] the following information, Calculate
a. Breakeven point
b. Number of units that must be sold to earn a profit of Rs.60000 per year
c. Number of units that must be sold to earn a net income of 10% on sales
Sales – Rs.20 per unit
Variable cost – Rs.14 per unit
Fixed cost - Rs.79200
[Link] sales and profit during the two years were as follows
Year Sales Profit
2020 140000 15000
2021 160000 20000
Calculate: a. PV Ratio b. Break Even point c. Sales required to earn a profit of Rs.40000
d. Fixed Expenses e. Profit when sales are Rs.120000
5. Fill in the blanks for each of the following independent situations:
Case [Link] Selling Variable Contributio Fixed cost Profit
units sold price per cost % of n margin Rs.
unit sales
Rs. Rs.
I 15000 ? 90 ? 30000 0
II 2000 160 ? 80000 ? (2000)
III ? 15 75 ? 25000 50000
Breakeven Analysis/Cost Volume Profit Analysis-Tutorials
[Link] that the cost structure and selling prices remain the same in Period I & II, find
out:
(a) Profit Volume Ratio (b) Fixed Cost (c) BEP in Rupees (d)Profit when sales are of
Rs.1,00,000 (e) Sales required to earn a Profit of Rs.20000 (f) Margin of safety at a profit of
Rs.15000 and (g) Variable cost in Period II
Period Sales Profit
I 120000 9000
II 140000 13000
2. From the following information relating to Palani Bros Ltd. You are required to find out
a). P/V ratio b).BEP c).Profit d). Margin of safety e).Volume of sales to earn a profit
Rs.6000
Total fixed cost Rs. 4,500 Total variable cost Rs.7,500 Total sales Rs.15,000
[Link] sales turnover and profit during two periods were as follows:
Period 1 Sales -Rs. 20 lakhs Profit-Rs. 2 lakhs
Period 2 Sales -Rs. 30 lakhs Profit- Rs. 4 lakhs
Calculate:
(i) P/V ratio
(ii) Sales required to earn a profit of Rs. 5 Lakhs and
(iii) Profit when sales are Rs. 10 Lakhs.
4. Margin of safety Rs.10000 which represents 40% of sales. P/V ratio 50%. Calculate (i) Sales
(ii) Break even sales (iii) Fixed cost (iv) Profit.
[Link] are given the following data for the year 2018 for a factor
Output 40000 units
Fixed Expenses Rs.200000
Variable cost per unit Rs.10
Selling Price per unit Rs.20
How many units must be produced and sold in the year 2018, if it is anticipated that
selling price would be reduced by 10%, Variable cost would be Rs.12 per unit and fixed cost
will increase by 10%?
The factory would like to make a profit in 2019 equal to that of the profit in 2018.