### Chapter 5 MARGINAL COSTING

Q1. From the following calculate P/V Ratio, BES and MOS
Sales                                          Rs 1,00,000
Fixed Cost                        Rs 20,000
Variable Cost                    Rs 60,000

Q2. Determine the amount of fixed expenses from the following particulars:
Sales                                                              Rs 2,40,000
Direct Materials                           Rs    80,000
Direct Labour                                        Rs    50,000
Profit                                                    Rs    50,000

Q3. From the following particulars, find out he selling price per unit if BEP is to be brought down to 9,000 units
Variable Cost per unit                 Rs 75
Fixed Expenses                                     Rs 2,70,000
Selling price per unit                     Rs 100

Q4. From the following data of AB Ltd, calculate BEP expressed in terms of units and also the new BEP if the selling price is reduced by 10%
Fixed Expenses:                Depreciation Rs 1,00,000
Salaries                            Rs 1,00,000
Variable Expenses:  Materials                Rs 3 per unit
Labour                              Rs 2 per unit
Selling Price Rs 10 per unit

Q5. You are given the following data for the year 2009 of XYZ Co.
Variable Cost                    Rs 6,00,000
Fixed Cost                        Rs 3,00,000
Net Profit                          Rs 1,00,000
Sales                                          Rs 10,00,000
Find out:
a.     PV Ratio
b.     BEP
c.     Profit when sales amounted to Rs 12,00,000
d.     Sales required to earn a profit of Rs 2,00,000

Q6. From the following records of VIP Ltd., calculate the Break-even point and the turnover required to earn a profit of Rs 36,000.
Fixed Cost                                                      Rs 1,80,000
Variable Cost per unit                  Rs 2
Selling Price                                          Rs 20
If the company is earning a profit of Rs 36,000, find out the margin of safety available to it.

Q7. From the following data calculate:
i.                 Break-even point expressed in amount of sales in rupees
ii.                No. of units that must be sold to earn a profit of Rs 1,20,000 p.a.
iii.              How many units are to be sold to earn net income of 15% of sales
Sales price per unit Rs 40
Variable manufacturing cost per unit Rs 22,       Variable selling cost per unit Rs 3
Fixed Factory Overheads Rs 1,60,000,                Fixed Selling cost Rs 20,000
Q8. Reliable Batteries Co furnishes you the following information:

First Half (Rs)
Second Half (Rs)

Profit earned

## 64,800

From the above you are required to compute the following assuming that the fixed cost remains the same in both the periods:
i.                 PV Ratio
ii.                Fixed Cost
iii.              Amount of profit or loss when sales are Rs 6,48,000
iv.              The amount of sales required to earn a profit of Rs 1,08,000

Q9. The sales and profits during the last two years are as follows:

Sales

# Profit

2009

## 40,000

You are required to calculate:
i.                 PV Ratio
ii.                BEP
iii.              Sales required to earn a profit of Rs 80,000
iv.              Profit made when sales are Rs 7,00,000
v.               Margin of Safety at a profit of Rs 50,000
vi.              Variable cost of two years

Q10. Present the following information to show to the management;
1.     The marginal product cost and the contribution per unit
2.     The total contribution and profits resulting from each of the following sales mixtures

Product

# Per Unit

B

9
Direct Wages

## 3

2
Fixed expenses Rs 800
Variable expenses are allocated to products as 100% of direct wages

B

# 20

15
Sales Mixtures:
i.                 1,000 units of product A and 2,000 units of B
ii.                1,500 units of product A and 1,500 units of B
iii.              2,000 units of product A and 1,000 units of B
Which product mix is most profitable?

Q11. An analysis of Chandini & co gives the following information:

Variable Cost
(% of sales)

# Rs

## Direct Materials

32.8
-
Direct Labour

-

1,89,900

58,400

#### 1.1

66,700
Budgeted sales are Rs 18,50,000. You are required to determine:
a.     The break-even sales volume
b.     The profit at the budgeted sales volume
c.     The profit if actual sales:
i.                 decrease by 10%
ii.                increase by 5%from budgeted sales.
Q12. Following are the records of VL Ltd.:
Selling Price per unit Rs 10
Direct material cost per unit Rs 3
Direct labour cost per unit Rs 2
Variable Overheads 100% on direct labour cost
a.     sales are 10% above break-even volume, determine net profit,
b.     15% above the break-even volume, determine the net profits.

Q13. A company has a PV ratio of 40%. By what % must sales be increased to offset;
i.                      10% reduction in SP;                             ii. 20% reduction in SP

Q14. Atlas Ltd. manufactures and sells four types of products under brand names A, B, C, D. Sales mix in value comprises 33⅓%, 41⅔%, 16⅔% and 8⅓% of A, B, C and D respectively. The total budgeted sales (100%) are Rs 60,000 per month.
Operating Costs are:
Variable    A            60% of Selling Price
B            68% of Selling Price
C            80% of Selling Price
D            40% of Selling Price
Fixed costs Rs 14,700 per month
Calculate the break-even point for the products on an overall basis.
It has been proposed to change sales mix as follows, the total sales per month remaining Rs 60,000
Product     A            25%
B            40%
C            30%
D             5%
Assuming the proposal is implemented, calculate the break-even point.

Q15. A multi-product company has the following costs and output data for the last year:

# Z

35%
25%
Selling Price

## Rs 30

Variable cost per unit

## Rs 18

Total Fixed Costs    Rs 1,50,000;                     Total Sales              Rs 5,00,000
The company proposes to replace product Z with product S. Estimated cost and output data are:

# S

30%
20%
Selling Price

## Rs 28

Variable cost per unit

## Rs 14

Total Fixed Costs    Rs 1,60,000
Total Sales                                  Rs 4,50,000
Analyse the proposed change and suggest what decision the company should take. Also state the break-even point for the company as a whole in the two situations.

Q16. AXL Equipments manufactures 4 components, the cost structure of which is given below:

# D

100
100
120
Direct Labour

Total

## 180

Output per machine hour (units)

## 3

The key factor is machine capacity. You are required to advice the management whether to make or buy them from supplier who quotes following price:
A- Rs 115;   B- Rs 175;              C- Rs 135 and         D- Rs 185

Q17. XYZ Co. has the following budget for the year 2009-10:
Sales (1,00,000 units @ Rs 20) Rs 20,00,000
Variable Cost                                                               Rs 10,00,000
Contribution                                                        Rs 10,00,000
Fixed Cost                                                                   Rs   4,00,000
Net Profit                                                                     Rs   6,00,000
From the above set of information, find out:
a.     The adjusted profits for 2009-10 if the following 2 set of changes are introduced and also suggest which plan should be implemented?
Plan A

## Plan B

Increase in price 20%
Decrease in price 20%
Decrease in volume 25%
Increase in volume 25%
Increase in variable cost 10%
Decrease in variable cost 10%
Increase in fixed cost 5%
Decrease in fixed cost 5%
b.     Find the PV ratio and BEP under the two plans referred above?

Q18. A Ltd. and B Ltd. sell the same type of product in the same type of market. You are furnished with their following budgeted revenue statement for the financial year 2007-08.

A Ltd.

# B Ltd.

Fixed Cost

Profit

Sales

## 6,00,000

You are required to calculate the following in each case:
1.     PV Ratio
2.     BEP
3.     Margin of Safety
4.     Volume of sales when the amount of profit is Rs 80,000
Decide business is likely to earn greater profits in conditions of:
i.                 Heavy demand for the product
ii.                Low demand for the product

Q19. The following particulars are extracted from records of a company:

Product A

# Product B

## Sales

Rs 100 p.u.
Rs 120 p.u.
Consumption of raw materials

## Material Cost

Direct Wage Cost

Direct Expenses

#### Rs 6 p.u.

Machine hours used

#### Rs 10 p.u.

Variable

#### Rs 20 p.u.

Direct Wages per hour is Rs 5. Comment on the profitability of each product (both products need the same raw materials) when:
a)    Total sales potentials in units is limited
b)    Total sales potentials in value is limited
c)     Raw material is in short supply
d)    Production capacity (in terms of machine hours) is a limiting factor.
Assuming raw materials as the key factor, availability of which is 10,000 kg and maximum sales potential of each product being 3,500 units, find the product mix which will yield the maximum profit.

Q20. Profit for the year of High Hopes Limited works out to 12.50% of capital employed, and relevant figures are as under:
Sales Rs 5,00,000
Direct Materials                           Rs 2,50,000
Direct Labour                                        Rs 1,00,000
Capital Employed              Rs 4,00,000
The new sales manager who has joined the company recently estimates for the next year a profit of about 23% on capital employed provided the volume of sales is increased by 10% and simultaneously there is an increase in selling price of 4% and an overall cost reduction in all elements of cost of 2%. Find out by computing in detail the cost and profit for the next year, whether the proposal of sales manager can be adopted?

Q21. Smooth Flow Ltd. manufactures ballpoint pens. The present cost structure is as follows:
Direct Material                                                 9 paise per unit
Direct Labour                                                            3 paise per unit
Direct Expenses                                              1 paise per unit
Other variable overheads             2 paise per unit
The company sells refills at 25 paise
Fixed cost per month are              Rs 10,000
a)    How many refills the company must sell so that it does not incur any loss or make any profit?
b)    How many refills the company must sell to achieve profit of Rs 8,000 per month?
c)     A firm in Dubai has offered to buy 15,000 refills per month. However the price has to be much lower. This order requires additional packing cost of 2 paise and forwarding cost of 1 paise per refill. If  the company has to produce this capacity, in addition to its normal output, can the offer be accepted at a price of:
i.     16 paise
ii.     19 paise

Q22. The following data relate to manufacturing company:
Plant capacity  4,00,000 units per annum.  Present utilisation 40%
Actuals for the year 2006 were:
Selling price Rs 50 per unit
Materials cost Rs 20 per unit
Variable Manufacturing costs Rs 15 per unit
Fixed costs Rs 27,00,000
In order to improve the capacity following proposals are considered:
Reduce selling price by 10%
Spend additionally Rs 3,00,000 on sales promotion
How many units should be made and sold in order to earn a profit of Rs 5,00,000 per year?

Q23. East India Co. is currently working at 50% capacity and produces 10,000 units. At 60% working, raw material cost increases by 2% and selling price falls by 2%. At 80% working, raw material cost increases by 5% and selling price falls by 5%. At 50% capacity working, the product costs Rs 180 p.u. & is sold at Rs 200 p.u. The unit cost of Rs 180 is made up as follows:
Material Rs 100
Labour Rs 30
Factory overheads Rs 30 (40% fixed)