MARGINAL COSTING

Cost & Profit Statement

PARTICULARS UNITS PER UNIT

Sales XXX XX
Less : VARIABLE COST XXX XX

CONTRIBUTION XXX XX
Less : FIXED COST XXX

PROFIT XXX
1) CONTRIBUTION :
Contributes towards recovering fixed
costt and
d th
then contributes
t ib t tto earn profit.
fit

a) CONTRIBUTION =
Sales – Variable Cost.
Cost

b)) CO
CONTRIBUTION O =
Fixed Cost + Profit.
2) P/V RATIO
Rate at which profit is earned on
additional units.
A) Contribution p.u
pu
X 100
Sales p
p.u
u
Or
B) Contribution
X 100
Sales
Or
C) Diff. In profit
X 100
Diff. In sales
 TOTAL SALES

BEP SALES MOS SALES

[Recovers Fixed Cost. [Earns Profit]
No Profit No Loss]]
 3) BREAK EVEN POINT SALES :-
Neither profit is earned nor loss is incurred. Cost
and revenue are equal .
a) BEP SALES (Units) =
Fixed Cost
Contribution p.u
pu
b) BEP SALES (Value) =
Fixed Cost Fixed Cost
X Sales p.u. Or X Sales
Contribution p.u Contribution
Or
Fixed Cost
P/V Ratio
4) MARGIN OF SAFETY SALES :
Sales beyond break even point sales.
Profit is earned only due to MOS Sales.
Profit
a)) MOS SALES ((Units)) =
Contribution Per Unit
Profit
b) MOS SALES (Value)
(V l ) = × Sales
S l p.u. OR
Contribution Per Unit
Profit
2. × Sales OR
Contribution
Profit
3.
P/V RATIO
c) MOS SALES (U/V) = Actual Sales BEP Sales
(units/value) (units/value)
5) DESIRED SALES :-
Sales whereby desired profit is earned
a) DESIRED SALES (Units) =
(Fixed Cost + Desired Profit)
Contribution Per Unit
b) DESIRED SALES (Value) =
(Fixed Cost + Desired Profit) Sales p.u.
pu
1. ×
Contribution Per Unit Or

2.
(Fi d Cost
(Fixed C t + Desired
D i d Profit)
P fit) Sales
Contribution ×
Or
3.
(Fixed Cost + Desired Profit)
P/V Ratio
TYPES OF PROBLEMS :
1 Formula
1. F l based
b d problems
bl
2. Problems based on Best sales mix.
Whichever sales mix gives maximum
contribution is the best sales mix
mix.
3. Problems based on MERGER of
Plants / Factories
Merge the plants / factories
bringing them to a common
capacity level.
4. Problems with 2 sales & 2 Profit figures.
a) First find out P/V ratio as
Diff In profit
Diff.
X 100
Diff. In sales
b) Using P/V ratio =
Contribution
X 100
Sales
Find out Contribution.
C) Using Contribution find out fixed cost as
Contribution = Fixed Cost + Profit.
 Important Questions
Q 2 4,
Q.2, 4 8,
8 9,
9 11,
11 14,
14 16,
16 17