Marginal Costing Problems Only

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Some more Problems on Application of Marginal Costing in Decision Making
Problem 1
The sports material manufacturing company budgeted the following data for the coming year.
`
Sales (1,00,000 units) 1,00,000
Variable cost 40,000
Fixed cost 50,000
Find out
(a) P/V Ratio, B.E.P and Margin of Safety
(b) Evaluate the effect of
(i) 20% increase in physical sales volume
(ii) 20% decrease in physical sales volume
(iii) 5% increase in variable costs
(iv) 5% decrease in variable costs
(v) 10% increase in fixed costs
(vi) 10% decrease in fixed costs
(vii) 10% decreases in selling price and 10% increase in sales volume
(viii) 10% increase in selling price and 10% decrease in sales volume
(ix) ` 5,000 variable cost decrease accompanied by ` 15,000 increase in fixed costs.
Problem 2
Two businesses AB Ltd and CD Ltd sell the same type of product in the same market. Their budgeted
profits and loss accounts for the year ending 30th June, 2016 are as follows:
AB Ltd (`) CD Ltd (`)

Sales 1,50,000 1,50,000
Less: Variable costs 1,20,000 1,00,000
Fixed Cost 15,000 1,35,000 35,000 1,35,000
Profit 15,000 15,000
You are required to calculate the B.E.P of each business and state which business is likely to earn
greater profits in conditions.
THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 1

(a) Heavy demand for the product
(b) Low demand for the product.
Problem 3
A factory is currently working to 40% capacity and produces 10,000 units. At 50% the selling price falls by
3%. At 90% capacity the selling price falls by 5% accompanied by similar fall in prices of raw
material. Estimate the profit of the company at 50% and 90% capacity production.
The cost at present per unit is:
`
Material 10
Labour 3
Overheads 5 (60% fixed)
The selling price per unit is ` 20/- per unit.
Problem 4
The sales turnover and profit during two periods were as follows:
Period Sales (`) Profit (`)

1 2,00,000 20,000
2 3,00,000 40,000
What would be probable trading results with sales of `1,80,000? What amount of sales will yield a
profit
of ` 50,000?
Problem 5
The following figures for profit and sales obtained from the accounts of X Co. Ltd.

2014 20,000 2,000
2015 30,000 4,000
Calculate:
(a) P/V Ratio
(b) Fixed cost
(c) B.E. Sales
(d) Profit at sales ` 40,000 and
(e) Sales to earn a profit of ` 5,000.
Problem 6
The following results of a company for the last two years are as follows:

2014 1,50,000 20,000
2015 1,70,000 25,000
You are required to calculate:
(i) P/V Ratio
(ii) B.E.P
(iii) The sales required to earn a profit of ` 40,000
(iv) Profit when sales are ` 2,50,000
(v) Margin of safety at a profit of ` 50,000 and
(vi) Variable costs of the two periods.
Problem 7
The Reliable Battery Co. furnishes you the following income information:
Year 2015
First Half (`) Second Half (`)
Sales 8,10,000 10,26,000
Profit earned 21,600 64,800
From the above you are required to compute the following assuming that the fixed cost remains the
same in both periods.
1. P/V Ratio
2. Fixed cost
3. The amount of profit or loss where sales are ` 6,48,000
4. The amount of sales required to earn a profit of ` 1,08,000
Problem 8
The following figures relate to a company manufacturing a varied range of products:
Total Sales (`) Total Cost (`)

Year ended 31-12-2014 22,23,000 19,83,600
Year ended 31-12-2015 24,51,000 21,43,200
Assuming stability in prices, with variable cost carefully controlled to reflect pre-determined relation.
(a) The profit volume ratio to reflect the rates of growth for profit and sales and
(b) Any other cost figures to be deduced from the data.
THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 3

Problem 9
SV Ltd a multi product company furnishes you the following data relating to the year 2015:
First Half of the year (`) Second Half of the year (`)
Sales 45,000 50,000
Total cost 40,000 43,000
Assuming that there is no change in prices and variable cost and that the fixed expenses are incurred
equally in the two half year period, calculate for the year, 2015
(i) The P/V Ratio,
(ii) Fixed Expenses
(iii) Break-even sales
(iv) Percentage of Margin of safety.
Problem 10
S Ltd. furnishes you the following information relating to the half year ended 30th June, 2015.
(`)
Fixed expenses 45,000
Sales value 1,50,000
Profit 30,000
During the second half the year the company has projected a loss of `10,000.
Calculate:
(1) The B.E.P and M/S for six months ending 30th June, 2015.
(2) Expected sales volume for the second half of the year assuming that the P/V Ratio and Fixed
expenses remain constant in the second half year also.
(3) The B.E.P and M/S for the whole year for 2015.
Problem 11
The following is the statement of a Radical Co. for the month of June.
Products Total
L (`) M (`) (`)
Sales 60,000 60,000 1,20,000
Variable costs 42,000 30,000 72,000
Contribution 18,000 30,000 48,000
Fixed cost 36,000
Net Income 12,000
You are required to compute the P/V ratio for each product and then compute the P/V Ratio,
Breakeven Point and net profit for the following assumption.
(i) Sales revenue divided 60% to Product L & 40% to Product M.
(ii) Sales revenue divided 40% to Product L & 60% to Product M.
Also calculate the profit estimated on sales upto ` 1,80,000/- p.m. for each of the sales mix provided
above.
Problem 12
Accelerate Co. Ltd., manufactures and sells four types of products under the brand names of A, B,
1 2 2 1
C and D. The sales Mix in value comprises 33 %, 41 %, 16 %, and 8 % of products A, B, C & D
respectively. 3 3 3 3
The total budgeted sales (100% are `60,000 p.m.). Operating costs are:
Variable Costs:
Product A 60% of selling
price Product B 68% of selling
price Product C 80% of selling
price Product D 40% of
selling price Fixed Costs: `
14,700 p.m.
(a) Calculate the break - even - point for the products on overall basis and
(b) Also calculate break-even-point, if the sales mix is changed as follows the total sales per
month remaining the same. Mix: A - 25% : B - 40% : C - 30% : D - 5%.

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Some more Problems on Application of Marginal Costing in Decision Making

AB Ltd (`) CD Ltd (`)

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 1

Period Sales (`) Profit (`)

Period Sales (`) Profit (`)

Period Sales (`) Profit (`)

Total Sales (`) Total Cost (`)

THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 3

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