Marginal Costing Q - FACE TO FACE BATCHES … Costing CA R. K. Mehta Page No. 5 Que stion: 2 0 (June, 2003) The following particulars relate to a manufacturing factory for the month

Marginal Costing

CA Past Years Exam

Question : 1 (June, 2009)

Product Z has a profit –Volume ratio of 28%. Fixed operating costs directly attributable to product Z

during the quarter II of the financial year will be

achieve a quarterly profits of ` 70,000.

Question : 2 (Dec, 2008) (ICMA)

The fixed cost for the production of a particular item is

per unit and its sale price being ` 7 per unit, determine its break

profit if 2,000 such units were sold in a month? How many such units should be sold to earn a profit

of ` 3,000 per month?

Question : 3 (June, 2000) (ICMA )

A company has margin of safety at 20% and earns a profit of

its current sales and fixed costs.

Question : 4 (May, 2008)

A company has fixed cost of ` 90,000 sales

(i) What is the sales value in the next period if the company suffered a loss of

(ii) What is the margin of safety for a profit of

Question : 5 (June, 2001) (ICMA)

A company has a P/V ratio of 40%. It maintains a margin of safety of 20%. If its annual fixed costs

amount to ` 24 lakhs, calculate its:

(i) Break-even sales, (ii)

(iii) Total sales (iv)

Question : 6 (Nov, 1996)

A company sells two products, J and K. The sales mix is 4 units of J and 3 units of K. The contribution

margin per unit are `40 for J and `

break-even point.

Question : 7 (June, 2001) (CS Inter)

From the following data, you are required to calculate the break

that point:

Direct materials cost per unit (`)

Direct labour cost per unit (`)

Fixed overheads (`)

Selling price per unit (`)

Trade discount (%)

Variable overheads @ 60% on direct labour.

If sales are 15% and 20% above the break

Marginal

CA R. K. Mehta

Page No. 1

CA Past Years Exam Question

Volume ratio of 28%. Fixed operating costs directly attributable to product Z

during the quarter II of the financial year will be ` 2,80,000. Calculate the sales revenue required to

70,000.

fixed cost for the production of a particular item is ` 200 per month. Its variable cost being

7 per unit, determine its break-even volume. What would be the

re sold in a month? How many such units should be sold to earn a profit

A company has margin of safety at 20% and earns a profit of ` 4 lakhs. If its P/V ratio is 0.4, calculate

90,000 sales ` 3,00,000 and profit of ` 90,000. Required –

What is the sales value in the next period if the company suffered a loss of ` 30,000?

What is the margin of safety for a profit of ` 90,000?

ratio of 40%. It maintains a margin of safety of 20%. If its annual fixed costs

(ii) Margin of safety

Total variable costs and (v) Profit


` 20 for K. Fixed costs are ` 6,16,000 per month. Compute the

From the following data, you are required to calculate the break-even point and net sales value at

Variable overheads @ 60% on direct labour.

If sales are 15% and 20% above the break-even volume, determine the net profits.

Marginal Costing

CA R. K. Mehta

Volume ratio of 28%. Fixed operating costs directly attributable to product Z

2,80,000. Calculate the sales revenue required to

200 per month. Its variable cost being ` 3

even volume. What would be the

re sold in a month? How many such units should be sold to earn a profit

ratio is 0.4, calculate

–

30,000?

ratio of 40%. It maintains a margin of safety of 20%. If its annual fixed costs


16,000 per month. Compute the

even point and net sales value at

8

5

24,000

25

4

Marginal Costing CA R. K. Mehta

Page No. 2

Question : 8 (Dec, 2000) (ICMA Inter)

Last year, a company earned 20% profit on a sales turnover of ` 100 lakhs. To improve its profitability

and competitiveness, the management has decided to reduce selling price by 10% and increase

output and sales by 20%. Cuts are proposed to be effected on variable and fixed costs at 5% and 20%

respectively. What effect will these steps have on the company’s profit this year? The company was

having fixed cost of ` 25 lakhs per annum last year.

Question : 9 (June, 2001) (ICMA Inter)

A company, having annual sales of ` 10 crores, is earning 12% profit before depreciation amount to `

100 lakhs respectively. If the P/V ratio of the company is 40%, calculate its break-even sales.


PQR Ltd. Has furnished the following data for the two years:

1997-98 1998-99

Sales ` 8,00,000 ?

Profit/Volume ratio (P/V ratio) 50% 37.5%

Margin of safety sales as a % of total sales 40% 21.875%

There has been substantial in the fixed cot in the year 1998-99 due to the restructuring process. The

company could its sales quantity level of 1997-98 in 1998-99 by reducing selling price.

You are required to calculate the following:

(i) Sales for 1998-99 in `

(ii) Fixed cost for 1998-99.

(iii) Break-even sales for 1998-99 in `


A company produces single product which sells for ` 20 per unit. Variable cost is ` 15 per unit and

fixed overhead for the year is ` 6,30,000.

Required:

(a) Calculate sales value needed to earn a profit of 10% on sales.

(b) Calculate sales price per unit to bring BEP down to 1,20,000 units.

(c) Calculate margin of safety sales if profit is ` 60,000.

Question : 12 (Dec, 2007)

The following data is obtained from the records of an industrial unit:

`

Sale of 4,000 units @ ` 25 each 1,00,000

Material consumed 40,000

Variable overheads 10,000

Labour charges 20,000

Fixed overheads 18,000 88,000

Net profit 12,000

You are required to calculate:

(i) The number of units by selling which the company will neither lose nor gain anything.

(ii) The sales needed to earn a profit of 20% on sales.

(iii) The extra units which should be sold to obtain the present profit if it is proposed to reduce

the selling price by 20%.

(iv) The selling price to be fixe to bring down its break-even point to 500 units under present

conditions.


Page No. 3


A company manufactures a product, currently utilizing 80% capacity with a turnover of ` 8,00,000 at

` 25 per unit. The cost data are as under:

Material cost ` 7.50 per unit, labour cost ` 6.25 per unit.

Semi-variable cost (including variable cost of ` 3.75 per unit) ` 1,80,000.

Fixed cost ` 90,000 up to 80% level of output, beyond this an additional ` 20,000 will be incurred.

Calculate :

(i) Activity level at break-even-point

(ii) Number of units to be sold to earn a net income of 8% of sales

(iii) Activity level needed to earn a profit of ` 95,000

(iv) What should be the selling price unit, if break-even-point is to be brought down to 40% activity

level?


PQ Ltd. reports the following cost structure at two capacity levels: -

Production Overhead 2,000 Units (100% Capacity) 1,500 Units

I ` 3 per unit ` 4 per unit

II ` 2 per unit ` 2 per unit

If the selling price, reduced by direct material and labour, is ` 8 per unit, what would be its break-

even point?

Question : 15 (Dec, 2007) ICMA Inter

A manufacturing company, currently marketing 15,000 units of a product @ ` 120 per unit indicates

the following cost structure:

Variable cost: Material – ` 56 per unit

Labour – ` 10 per unit

Expenses – ` 6 per unit

Next year’s budget has been based on material price increase by 6%, labour cost increase by 8% due

to new wage settlement and variable expenses increase by 3%.

Fixed expenses are expected to go up by 5%. Current fixed cost = ` 1,00,000.

You are required to present before the management for decision:

(a) A statement showing profit in the next year’s budget;

(b) The new selling price, if the current profit volume ratio is to be maintained; and

(c) The quantity to be sold during next year to achieve the same quantum of profit without price

increase.

Question : 16 (June, 2000)

A multi-product company gives the following data of cost and sales of the three products

manufactured by it.

Production

X Y Z

Sales mix (% of sales value) 40 30 30

Selling price per unit (`) 400 250 200

Variable cost per unit (`) 200 100 120

Total fixed cost ` 22,00,000

Total sales : ` 1,00,00,000

The current level of production absorbs the entire fixed cost of the company.

The management of the company wants to discontinue ‘Z’ and introduce ‘W’ to improve profitability.


Page No. 4

The revised data on production and sales is as follows:

Production

X Y W

Sales mix (% of sales value) 50 30 20

Selling price per unit (`) 400 250 320

Variable cost per unit (`) 200 100 180

Total sales : ` 1,00,00,000

You are required to determine:

(a) Profit currently earned and profit likely to be earned after introduction of ‘W’.

(b) Current break-even sales and break-even sakes after introduction of ‘W’

(c) If it is possible to increase sales of any one of the products X, Y or W by 20% by keeping the

total sales unchanged. What alternative mix would you suggest for higher profit?

Question : 17 (Dec, 2001) CS Inter

Your company, manufacturing 1,00,000 units p.a. sells it at a price of ` 80 per unit. The variable cost

per unit is ` 48 and the annual fixed cost amounts to ` 18 lakhs. Based on these data, you are

required to work out the following:

(i) Present P/V ratio and break-even sales.

(ii) Increase in the volume of sales required if the profit is sought to be increased by ` 3.6 lakhs.

(iii) Percentage increase/decrease in sales quantity to offset an increase of ` 7 per unit in variable cost.

Question : 18 (Dec, 2001) ICMA Inter

The management of your organisation is considering a wage increase of 20%, effective from the

beginning of next year. By virtue of various cost drives already implemented, it is expected that there

would be no furthered increase in any other cost. The management seeks your feedback on the

following:

(i) Increase in selling price required for maintaining the existing profit-volume ratio.

(ii) Assuming no increase in selling price is possible under the prevailing competitive environment, the

extent to which the reduction in overall profit (following wage increase) may be recovered by

utilizing the extra capacity.

(iii) The effect on overall profitability if the present capacity is increased by 30% accompanied by an

increase in fixed overheads by ` 1,00,000, selling price remaining at the present level.

The following data are readily available:

Present selling price ` 80 per unit

Variable cost: Material ` 30 per unit

Labour ` 20 per units

Variable overhead ` 10 per unit

Sales (at present) 50,000 units

Fixed overheads ` 2,00,000


A company has prepared the following budget of sales:

Product Sales PV ratio

` %

A 6,00,000 40

B 9,00,000 30

C 10,00,000 25

The fixed costs amount to ` 8,00,000.

You are required to revise the sales mix to ensure a profit of ` 10,000 in such a way that not more than

`8,00,000 of sales of product A is possible and that the present total value of sales should not be altered.


Page No. 5

Question: 20 (June, 2003)

The following particulars relate to a manufacturing factory for the month of March, 2015.

Variable cost per unit ` 14

Fixed factory overhead ` 5,40,000

Fixed selling overhead ` 2,52,000

Sales price per unit ` 20

(i) What is the break-even point expressed in rupee sale?

(ii) How many units must be sold to earn a target net income of ` 60,000 per, month.

(iii) How many units must be sold to earn a net income of 25% of cost?

(iv) What should be the selling price per unit if the break-even point is to be brought down to

1,20,000 units?

Question: 21 (Nov, 1997)

The ratio of variable cost to sales is 70%. The break-even point occurs at 60% of the capacity sales.

(a) Find the capacity sales when fixed costs are ` 90,000.

(b) Also compute profit at 75% of the capacity sales.

Question: 22 (Dec, 2002) ICWA Inter

A newly formed company has an installed capacity to manufacture 5,00,000 units of a certain product

per annum. Current capacity utilisation is only 40% and sale price of the product is ` 40 per unit. The

product has the following cost profile:

Per unit

Direct materials : ` 20 Fixed costs per annum = ` 15 lakhs

Direct labour : 8

Variable overheads : 4

The company is considering the following options to increase profitability by ` 5 lakhs:

(i) Reduce selling price by 5%,

(ii) Spend ` 5 lakhs on sales promotion keeping selling price unaltered. How many units have to be

sold in either case?

Question : 23 (June, 2002) CS Inter

From the following information, you are required to find out (i) Margin of safety; and (ii) Volume of

sales required to earn profit of 10% on sales:

Total fixed cost = ` 4,500

Total variable cost = ` 7,500

Total Sales = ` 15,000

Sales (units) = 5,000

Question: 24 (Dec, 2008) ICWA Inter

A company is planning to install a water bottling plant. The estimated annual sales would be 50,000

bottles. Sale price will be ` 27 per bottle.

The cost estimates are as under:

Annual demand Total cost p.a. (`̀̀̀) Fixed portion (%)

Material cost 5,00,000 Nil

Wages 3,00,000 50%

Factory overheads 2,00,000 40%

Administration & Selling overheads 1,60,000 60%

Over and above, 10% of sale price is to be paid to the sales agency as commission.

(i) Calculate the break-even point and

(ii) What should be the sale price if the desired profit is 10% of sales?


Page No. 6


A company has annual fixed cost of ` 1,40,00,000. In the year 2007-08 sales amounted to `

6,00,00,000 as compared to ` 4,50,00,000 in the preceding year 2006-07. Profit in 2007-08 is `

42,00,000 more than that in 2006-07. On the basis of the above information, answer the following:

(i) At what level of sales, the company would have break-even?

(ii) Determine profit/loss on a forecasted sales volume of ` 8,00,00,000.

(iii) If there is a reduction in selling price by 10% in the financial year 2008-09 and the company

desires to earn the same amount of profit as in 2007-08, what would be the required sales

Questions : 26 (June, 2009) ICWA

The summarized profit and loss statement of shivaji limited for the last year us as follows:

(in ` ‘000)

Sales (50,000 units) 1,000

Direct material 350

Direct wages 200

Fixed production overhead 200

Variable production overhead 50

Fixed Administration overhead 180

Fixed Selling and distribution overheads 120

1,100

Profit /(loss) ` (100)

You are required, as management, to evaluate the following alternative proposals to improve the

situation, and to comment briefly on each:

(a) Pay salesmen a commission of 10% of sales and, thus, increase to achieve break-even point

(b) Reduce selling price by 10%, which, it is estimated, would increase sales volume by 30%

(c) Increase sales by additional advertising of ` 3,00,000, with an increased selling price of 20% setting

a profit margin of 10%.


Dinesh limited has provided the following information:

Sales price : ` 20 per unit

Variable cost : ` 14 per unit

Fixed overheads : ` 7,92,000 per annum

How many units must be sold to earn profit of 10% on sales?

Question : 28 (Dec, 2002) ICWA

A company’s report of operations for the two years shows the following results:

2000 2001

`̀̀̀ `̀̀̀

Sales 3,12,500 3,75,000

Profit/(loss) (7,500) 10,000

(i) At what level of sales does the company break-even?

(ii) Consider the following changes for the next year:

Selling price to be decreased by 10%. Variable cost to be decreased by 25%

Fixed costs to be increased ` 32,500. What sales value would be needs to generate a profit

equal to 10% of sales?


A company, which manufactures and sells three products, furnishes the following details for a month:

Products A B C

No. of units budgeted 1,00,000 38,000 46,000

Selling price per unit ` 50 80 60

Variable costs per unit ` 34 52 24


Page No. 7

It has been proposed that an intensive advertisement campaign involving an expenditure of

`1,20,000 per month and reduction of selling prices will increase the sales of product C as under:

(i) If the selling price is reduced to ` 55 per unit, the sales will increase to 59,000 units per month.

(ii) If the selling price is reduced to ` 51 per unit, the sales will increase to ` 65,000 units per month.

The fixed of the company amount to ` 34,20,000 per month.

(i) Calculate the current monthly break-even sales value of the company.

(ii) Evaluate the two proposals and advise which of the proposals should be implemented.

(iii) Calculate the sales units required per month of product C to justify the expenditure on

advertisement in respect of your decision in (ii) above.

Question : 30 CA (Nov, 1996) CS (Dec, 2002)

A company sells its product at ` 15 per unit. In a period, if it produces and sells 8,000 units, it incurs a

loss of ` 5 per unit. If the volume is raised to 20,000 units, it earns a profit of ` 4 per unit calculate the

break-even point both in terms of rupees as well as in units.

Question : 31 (Dec, 2002) ICWA

The variable cost structure of M/s. XYZ & company is as follows:

`̀̀̀ /unit

Materials 40

Labour 10

Overhead 04

Selling price 90

Sales and fixed overhead during the current year are expected to be ` 13,50,000 and ` 1,40,000

respectively. Under a new wage agreement, an increase of 10% in wage is payable to all the direct

workers from the beginning of forthcoming year, while the materials cost, variable overhead and

fixed overhead are expected to increase by 7.5%, 5% and 3% respectively. You are required to work

out:

(i) The new selling price, if the current P/V ratio is maintained, and

(ii) The quantity to be sold during the forthcoming year to yield the same amount of profit as in the

current year, assuming that the selling price unit will remain same.

Question : 32 (June, 2003) ICWA Inter

M/s. XYZ limited produces and sells three types of products – P, Q and R. The following set of

information is available:

Products Selling

price/unit

Direct

material/unit

Direct Wages/unit

Deptt. A

Direct Wages/Unit

Deptt. B

Direct Wages/unit

Deptt. C

P ` 300 ` 60 ` 20 ` 15 ` 10

Q ` 275 ` 30 ` 20 ` 20 ` 10

R `305 ` 70 ` 12 ` 10 ` 20

The absorption rates of overhead on the direct wages are given below:

Deptt. A Deptt. B Deptt. C

Variable overhead 150% 120% 200%

Calculate P/V ratio of P, Q and R.


A company earned a profit of ` 2,00,000 on a sale volume of ` 14,00,000 during the first half of a

year, the fixed cost being ` 5,00,000. However, during the second half of the year, it incurred a loss of

` 1,00,000 although unit variable cost, selling price and fixed cost remain the same. Required

(i) Profit-volume ratio, break-even point and margin of safety for the first half of the year.

(ii) Sales volume for the second half.

(iii) Break-even point and margin of safety for the whole year.


Page No. 8


A company has a project to install a new machine exclusively for the manufacture of a new product

which is expected to have good demand and reasonable high margin. Maximum possible annual sales

may not exceed ` 50 lakhs and if there is competition, it may fall considerably.. the company has

obtained quotations and short listed two offers for the new machine. Details in respect of the two

models are given below:

Machine models M1 M2

Maximum possible sales per year ` 50 lakhs ` 50 lakhs

Fixed cost per year 5 lakhs 8 lakhs

Estimated profit for maximum sales 15 lakhs 17 lakhs

You are required to calculate: (i) Break-even sales of each machine (ii) Sales at which both models

will gives the same profit (iii) Range of sales over which one models is better than the other.


ABC limited and MNO limited sell in identical products in identical markets. Their budget P.V.

statements for the year 2007-08 are as follows:

ABC MNO

` `

Sales 5,00,000 6,00,000

(Less) : Variable cost (4,00,000) (1,80,000)

Contribution 1,00,000 4,20,000

(Less): Fixed cost (20,000) (2,70,000)

Budgeted profits 80,000 1,50,000

Calculate : (a) BEP for each company.

(b) Sales at which each company will earn a profit of ` 60,000.

(c) Sales at which both companies will have same profits

(d) Which company will earn more profit when (i) Heavy demand (ii) Law demand?

Question : 36 (June, 2005) CS Inter

A newly set up manufacturing company is planning to produce a product that will sell for ` 10 per

unit. The demand of product is estimated at 10,000 units per year. The company has choice of two

machines, each of which has a capacity of producing 10,000 units per year. Machine-A would have

fixed costs of ` 30,000 per year and would yield a profit of ` 30,000 per year on sale of 10,000 units.

Machine-B would have fixed costs of ` 18,000 per year and would yield a profit of ` 22,000 per year

on sale of 10,000 units. Variable costs behave linearly for both machines.

Calculate the volume of sales at which the cost of the two machines will be indifferent.


A company is producing an identical product in two factories. The following are the details in respect

of both the factories:

Factory – X Factory – Y

Selling price per unit (`) 50 50

Variable cost per unit (`) 40 35

Fixed cost (`) 2,00,000 3,00,000

Depreciation included in fixed cost (`) 40,000 30,000

Margin costing and break-even analysis 30,000 20,000

Production capacity (Units) 40,000 30,000

You are required to determine: (i) Break-even point (BEP) for each individually.

(ii) Which factory is more profitable?

(iii) Cash BEP for each factory individually.


Page No. 9

Question : 38 (Dec, 2004) ICWA Inter

Two plants manufacturing the same product decide to margin. Particulars of operation of the two

plants before the merger as follows:

Plant A Plant B

Capacity utilized 80% 60%

Sales ` 4.80 crores ` 2.40 crores

Variable cost 3.52 crores 1.80 crores

Fixed cost 0.80 crores 0.40 crores

You are required to work out:

(i) Break-even capacity of the merged plant.

(ii) Profit earned at 75% capacity of the merged plant.

(iii) Sales required to earn a profit of ` one crore.


Two cement plants decide to merge to earn higher profits. The working result of the two plants for

the last year were as follows:

Plant I Plant II

Capacity utilized 80% 60%

Sales (lakhs of rupees) 400 240

Variable cost (…) 320 180

Fixed cost (…) 50 40

After merger, the management wants information on the following:

(i) Capacity at which the combined plant will break even.

(ii) Profit likely to be made of the combined plant works at 90% capacity.

(iii) Sales required to earn a profit of ` 60 lakhs. If the total fixed costs are reduced by ` 10 lakhs,

what sales will yield a profit of ` 60 lakhs?


X, Y and Z are the locations of plants owned by a single company. Contemplating merging the plants

they want you to find out

(i) The capacity of the merged plant at break-even,

(ii) Profits at 80% capacity after merger, and

(iii) Sales for a desired profit of ` 35 lakhs after merger of plants.

The details of pre-merger are as under:

X Y Z

Capacity utilization 100% 80% 60%

Turn over ` 400 lakhs 290 lakhs 160 lakhs

Variable cost ` 250 lakhs 200 lakhs 80 lakhs

Fixed cost ` 80 lakhs 50 lakhs 60 lakhs

Question : 41 (May 2001)

A company manufactures three products. The budged quantity, selling prices and unit costs are as

under:

Products Raw materials

@ ` 20 per kg.

Direct wages @

` 5 per hour

Variable

overheads

Fixed

overheads

Budgeted

production (units)

Selling price

per unit (`)

A 80 5 10 9 6,400 140

B 40 15 30 22 3,200 120

C 20 10 20 18 2,400 90

Required:

(a) Present a statement of budgeted profit.

(b) Set optimal product-mix and determine the profit, if the supply of raw materials is restricted to

18,400 kg.


Page No. 10


A company manufactures and sells two standard products × and Y using the same raw material,

labour and identical machines. Further particulars are given below:

X Y

Selling price/unit ` 80 ` 100

Per unit

Direct material @ ` 20/kg ` 20 ` 30

Direct labour @ ` 15/hr. ` 15 ` 15

Variable overheads ` 15 ` 15

Machine hours required ½ hr. ¾ hr.

Per annum

Maximum demand (units) 18,000 15,000

Current production (units) 15,000 12,000

Labour and materials are available according to requirements. But, machine capacity cannot be

increased immediately and the available capacity has been fully utilised by the current production

plan. Total fixed cost is ` 3,96,000. Required: (i) Current contribution analysis

(ii) Profit currently earned by the company.

(iii) Alternative production plan, if any more profitable to the company

(iv) Profit expected to be earned under the suggested plan.

Question : 43 (June 2008) ICWA Inter

Novelty limited produces a variety of products each having a number of component parts. Product P

takes 5 hours to produce on machine no. 20 working to full capacity. The selling price and marginal

cost of product P are ` 100 and ` 60 respectively. A component part B – 15 could be made in the

same machine in 2 hours for a marginal cost of ` 10 per unit. The supplier price is ` 25 per unit.

You are required to advise whether the company should mar or buy the component B-15.

(Assume that machine – hours is the limiting factor).


Bindu limited presents the following information for a year:

`

Material 1,20,000

Wages 2,40,000

Fixed expenses 1,20,000

Variable overheads 60,000

Selling price per unit 50

Output 12,000 units.

The available capacity is 20,000 units of production in a year. The company has an offer to sell 5,000

additional units at ` 40 each in a foreign market. It is anticipated, that, by accepting this offer there

will be a saving of re. 1 per unit in material cost on all the units manufactured but fixed expenses will

increase by ` 30,000 and an overall efficiency will drop by 2% on all production. Whether this offer be

accepted and why?

Question 45 : (June, 2009) ICWA Inter

New India engineering company limited three components A, B and. The following particulars are

provided:

Product A (`) B (`) C (`)

Sale price 60 55 50

Direct material 20 18 15

Direct labour 15 14 12

Variable overhead expenditure 13 13 17

Fixed cost is ` 1,00,000 per year. Estimated sales (in No, of Units) 2,000 2,000 2,000

Machine hrs. per unit 6 2 1


Page No. 11

Due to break down of one of the machines, the capacity is limited to 12,000 machine hours only and

this is not sufficient to meet the total sales demand.

You are required to work out:

(a) What will most profitable product mix that should be produced, and

(b) The total contribution from the revised product mix.


The following figures are related to LM Limited for the year ending 31st March –

Sales – 24,000 units at ` 200 per unit PV ratio 25% and break-even point 50% of sales.

You are required to calculate –

(i) Fixed cost for the year

(ii) Profit earned for the year

(iii) Units to be sold to earn a target net profit of ` 11,00,000 for a year.

(iv) Number of units to be sold to earn a net income of 25% on cost.

(v) Selling price per unit if break-even point is to be brought down by 4,000 units.

Question : 47 (May, 2013/15)

MFN Limited started its operation in 2011 with the total production capacity of 2,00,000 units. The

following data for two year is made available to you:

2011 2012

Sales 80,000 1,20,000

Total cost (`) 34,40,000 45,60,000

There has been no change in the cost structure and selling price and it is expected to continue in 2013

as well. Selling price is ` 40 per unit. You are required to calculate: (i) Break-Even point (in units)

(ii) Profit at 75% of the total capacity in 2013


A company gives the following information: -

Margin of Safety ` 3,75,000 Margin of Safety (Quantity) 15,000 units

Total Cost ` 3,87,500 Break Even Sales in Units 5,000 units

Calculate – (1) Selling Price per unit, (2) Profit, (3) Profit / Volume Ratio, (4) Break Even Sales (in

Rupees), and (5) Fixed Cost.


Following information is available for the first and second quarter of the year for ABC Limited:

Quarter Product (in units) Semi-Variable Cost

Quarter I 36,000 ` 2,80,000

Quarter II 42,000 ` 3,10,000

Required: Stare gate the semi-Variable cost and calculate –

(a) Variable cost per unit, and (b) Total fixed cost.


The PV ratio of delta limited is 50% and margin of safety is 40%. The company sold 500 units for

` 5,00,000. Calculate – (a) BEP, and (b) Sales in units to earn a profit of 10% on sales.


MNP Limited sold 2,75,000 units of its product at ` 37.50 per unit. Variable costs are ` 17.50 per unit

(Manufacturing costs of ` 14 and selling cost of ` 3.50 per unit). Fixed costs are incurred uniformly

throughout the year and amount to ` 35,00,000 (including depreciation of ` 15,00,000). There are no

beginning or ending inventories. Required:


Page No. 12

(i) Estimate breakeven sales level quantity and cash breakeven sales level quantity.

(ii) Estimate the PV ratio.

(iii) Estimate the number of units that must be sold to earn an income (EBIT) of ` 2,50,000.

(iv) Estimate the sales level to achieve an after-tax income (PAT) of ` 2,50,000.

Assume 40% corporate income tax rate.


Following information is available for the years 1 and 2 of PIX Limited:

Year Year 1 Year 2

Sales ` 32,00,000 ` 57,00,000

Profit / (Loss) (` 3,00,000) ` 7,00,000

Calculate – (a) PV ratio, (b) Total fixed cost, and (c) Sales required to earn a profit of ` 12,00,000.


A single product company sells its product at ` 60 per unit. Last year, the company operated a margin of

safety of 40%.The fixed costs amounted to `3,60,000 and the variable cost ratio to sales was 80%. In the

next year, it is estimated that the variable cost will go up by 10% and the fixed costs will increase by 5%.

1. Find the selling price required to be fixed in the next year to earn same PVR as in last year

2. Assuming the same selling price of ` 60 per unit in the next year also, find the number of units

required to be produced and sold to earn the same profit as in last year.


The comparative profit statement of two quarters of a firm is as under –

Particulars Quarter I Quarter II

Units sold 2,500 3,750

Direct materials ` 87,500 ?

Direct wages ` 62,500 ?

Fixed and variable factory overheads ` 75,000 ` 95,000

Sales ` 2,75,000 ?

Profit ` 50,000 ` 66,250

In the second quarter, the direct material price has increased by 20%. There was a saving of ` 5,000 in

fixed overheads in the second quarter. The other costs and selling price remained the same. Determine

the quantity that should have been sold in the second quarter to maintain the same amount of profit per

unit as in the first quarter.


SHA Ltd provides the following trading results:

Year Sales Profit

2012-13 ` 25,00,000 10% of sales

2013-14 ` 20,00,000 8% of sales

Calculate – (i) Fixed Cost, (ii) BEP, (iii) Amount of Profit, if sales is ` 30,00,000, (iv) Sales when desired

profit is ` 4,75,000 (v) Margin of safety at a profit of ` 2,70,000.


Zed Limited sells its product at ` 30 per unit. During the quarter ending on 31st March, it produced

and sold 16,000 units and suffered a loss of ` 10 per unit. If the volume of sales is raised to 40,000

units, it can earn a profit of ` 8 per unit. You are required to calculate: -

(a) BEP in rupees.

(b) Profit if the sales volume is 50,000 units.

(c) Minimum level of production where the company need not to close production if unavoidable

fixed cost is ` 1,50,000.

Documents

Marginal Costing Q - FACE TO FACE BATCHES … Costing CA R. K. Mehta Page No. 5 Que stion: 2 0 (June, 2003) The following particulars relate to a manufacturing factory for the month