CA Sunil Keswani

138

Marginal Costing
MAY – 2024 – 4 Marks
The following information is given by PQR Ltd:
Year Sales (`) Profit/ (Loss) (`)
2022-23 1,80,00,000 (3,80,000)
2023-24 2,40,00,000 11,20,000
You are required to:
(i) Calculate the Break even sales
(ii) In 2024-25, it is estimated that the variable cost will go up by 5% and fixed cost will
reduce by `4,80,000. Selling price will remain same. Calculate the sales volume to earn a
profit of `15,00,000.

Solution
!"#$%& ($ )*+,(- 22,45,5556(68,95,555)
(i) P/V Ratio = ."#$%& ($ /#0&1
× 100 = 4,;5,55,55562,95,55,555 × 100 = 25%
Fixed cost = contribution – Profit = (2,40,00,000 ´ 25%) – 11,20,000 = `48,80,000
<(=&> !+1- ;9,95,555
Break-even sales = )? @#-(+
= 4A%
= `1,95,20,000

(ii) Desired contribution in 2024-25 = Revised fixed cost + Target profit

= (48,80,000 – 4,80,000) + 15,00,000 = `59,00,000
Earlier P/V Ratio= 25%. So Variable cost = 75%
Selling price remain the same
Variable cost increased by 5% i.e. Variable cost ratio will be 78.75% (75 + 5% of 75).
Now revised P/V Ratio = 100 – 78.75% = 21.25%
AC,55,555
Sales volume in 2024-25 = = `2,77,64,706 (approx.)
42.4A%

NOV – 2023 – 5 Marks

R Ltd. produces and sells 60,000 units of product 'AN', at its Noida Plant. The selling price of the
product is `15 per unit. The variable cost is 80% of selling price per unit. Fixed cost during this
period is `4,20,000. The company is continuously suffering losses, and management plans to shut
down the Noida Plant.
The fixed cost is expected to be reduced by `2,50,000. Additional costs of plant shut down are
expected at `25,000. You are required to comment on:
(i) Whether the Noida plant be shut down?
(ii) Find the shut-down point in units.

Solution
(i) Statement of Profit
Particulars If plant is continued (`) If plant is shut down (`)
Selling price 15 per unit -
Less: Variable cost 12 per unit -

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Contribution 3 per unit -
Capacity 60,000 units -
Total contribution 60,000 ´ 3 = 1,80,000 -
Less: Fixed cost 4,20,000 1,70,000
Less: Additional fixed cost - 25,000
Loss (2,40,000) (1,95,000)
Since the loss of Noida plant exceeds shut down cost, it is better to shut down the plant.

E+-#0 ,(=&> !+1-6/"F- >+G$ !+1- ;,45,55562,CA,555

(ii) Shut down point = .+$-*(HF-(+$ I&* F$(-
= 8
= 75,000 units

MAY – 2023 – 5 Marks

MNP Company Limited produces two products ‘A’ and ‘B’. The relevant cost and sales data per
unit for output is as follows:
Particulars Product A (`) Product B (`)
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
Selling price 180 175
The availability of machine hours is limited to 55,000 hours for the month. The monthly demand
for product ‘A’ and product ‘B’ is 5,000 units and 6,000 units, respectively. The fixed expenses of
the company are `1,40,000 per month. Variable factory overheads are `4 per machine hours. The
company can produce both products according to the market demand.
Required:
Calculate the product mix that generates maximum profit for the company in the situation and also
calculate profit of the company.

Solution
Particulars Product A (`) Product B (`)
Selling price 180 175
Variable cost:
Direct material 55 60
Direct labour 35 45
Variable factory overheads 40 20
130 125
Contribution 50 50
Machine hour per unit 10 5
Contribution per machine hour 5 10
Rank II I

Statement of Product Mix and Profit

Product Units Hours per unit Material consumed Contribution
B 6,000 5 30,000 6,000×50 = 3,00,000
A 25,000÷10 = 10 (Bal. fig.) 25,000 2,500×50 = 1,25,000
2,500

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37,600 55,000 4,25,000
Less: Fixed cost 1,40,000
Profit 2,85,000

MAY – 2023 – 5 Marks

The following information pertains to ZB Limited for the year:
Profit volume ratio 30%
Margin of Safety (as % of total sales) 25%
Fixed costs `12,60,000
You are required to calculate:
(i) Break even sales value (`)
(ii) Total sales value (`) at present
(iii) Proposed sales value (`) if company wants to earn the present profit after reduction of 10%
in fixed cost,
(iv) Sales in value (`) to be made to earn a profit of 20% on sales assuming fixed cost remains
unchanged,
(v) New Margin of Safety if the sales value at present as computed in (ii) decreased by 12.5%

Solution
<(=&> !+1- 24,J5,555
(i) Break even sales value = )? @#-(+
= 85%
= `42,00,000

(ii) Sales = Breakeven sales + Margin of safety

Sales = 42,00,000 + (0.25 ´ Sales)
Sales = 42,00,000 ÷ 0.75 = `56,00,000

(iii) Present profit = Contribution – Fixed cost = (56,00,000 ´ 30%) – 12,60,000 = `4,20,000
<(=&> !+1- K @&LF(*&> I*+,(- (24,J5,555×C5%) K ;,45,555
Proposed sales = )? @#-(+
= 85%
= `51,80,000

<(=&> !+1- K @&LF(*&> I*+,(-

(iv) Sales = )? @#-(+
24,J5,555 K(5.45)(/#0&1)
Sales = 5.85
Sales = 12,60,000 ÷ 0.10 = `1,26,00,000

(v) New Margin of Safety = Sales – BES = (56,00,000 ´ 87.5%) – 42,00,000 = `7,00,000

NOV – 2022 – 5 Marks

ABC Ltd. sells its product ‘Y’ at a price of `300 per unit and its variable cost is `180 per unit.
The fixed costs are `16,80,000 per year uniformly incurred throughout the year. The profit for the
year is `7,20,000. You are required to calculate:
(i) BEP in value (`) and units,
(ii) Margin of Safety
(iii) Profits made when sales are 24,000 units
(iv) Sales in value (`) to be made to earn a net profit of `10,00,000 for the year.

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Solution
.+$-*(HF-(+$ (8556295)
(i) PV Ratio = /#0&1
× 100 = 855
× 100 = 40%
<(=&> !+1- 2J,95,555
Break-even Point in value (`) = )? @#-(+
= ;5%
= `42,00,000
<(=&> !+1- 2J,95,555
Break-even Point in Units = .+$-*(HF-(+$ I&* F$(- = 245
= 14,000 units

)*+,(- N,45,555
(ii) Margin of safety (in `) = )? @#-(+ = ;5%
= `18,00,000
)*+,(- N,45,555
Margin of safety (in units) = .+$-*(HF-(+$ I&* F$(- = 245
= 6,000 units

NOV – 2022 – 5 Marks

An agriculture based company having 210 hectares of land is engaged in growing three different
cereals namely, wheat, rice and maize annually. The yield of the different crops and their selling
prices are given below:
Wheat Rice Maize
Yield (in kgs per hectare) 2,000 500 100
Selling price (`per kg) 20 40 250
The variable cost data of different crops are given below:
(All figures in `per kg)
Crop Labour Charges Packing Materials Other Variable Expenses
Wheat 8 2 4
Rice 10 2 1
Maize 120 10 20
The company has a policy to produce and sell all the three kinds of crops. The maximum and
minimum area to be cultivated for each crop is as follows:
Crop Maximum area (in hectares) Minimum area (in hectares)
Wheat 160 100
Rice 50 40
Maize 60 10
You are required to:
(i) Rank the crops on the basis of contribution per hectare.
(ii) Determine the optimum product mix considering that all the three cereals are to be produced.
(iii) Calculate the maximum profit which can be achieved if the total fixed cost per annum is
`21,45,000.
(Assume that there are no other constraints applicable to this company).

Solution
(i) Statement showing Ranking of Crops on the basis of Contribution per hectare
Particulars Wheat Rice Maize
Selling price per kg (`) 20 40 250
(-) Labour charges per kg (`) 8 10 120
(-) Packaging material per kg (`) 2 2 10
(-) Other variable expenses per kg (`) 4 1 20
Contribution per kg (`) 6 27 100

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Yield (in kgs per hectare) 2,000 500 100
Contribution per hectare 12,000 13,500 10,000
Ranking II I III

(ii) & (iii) Statement showing optimum product mix and profit
Particulars Wheat Rice Maize Total
Minimum area (in hectare) 100 40 10 150
Remaining area (in hectare 60
Distribution of remaining area based 50 10 - 60
on raking considering maximum
area
Optimum mix (in hectare) 150 50 10 210
Contribution per hectare (`) 12,000 13,500 10,000
Total contribution (`) 18,00,000 6,75,000 1,00,000 25,75,000
(-) Fixed Cost - - - 21,45,000
Profit - - - 4,30,000

MAY – 2022 – 5 Marks

UV Limited started a manufacturing unit from 1st October 2021. It produces designer lamps and
sells its lamps at `450 per unit.

During the quarter ending on 31st December, 2021, it produced awnd sold 12,000 units and suffered
a loss of `35 per unit.

During the quarter ending on 31st March, 2022, it produced and sold 30,000 units and earned a
profit of `40 per unit.

You are required to calculate:

(i) Total fixed cost incurred by UV Ltd. per quarter
(ii) Break Even sales value (in rupees)
(iii) Calculate Profit, if the sale volume reaches 50,000 units in the next quarter (i.e. quarter
ending on 30th June, 2022).

Solution
Quarter Units sold Profit/(loss) Total Total Sales
per unit Profit/(loss)
Ending 31st Dec 12,000 (35) (4,20,000) 54,00,000
Ending 31st March 30,000 40 12,00,000 1,35,00,000
Change 16,20,000 81,00,000
."#$%& ($ I*+,(- 2J,45,555
(i) PV ratio = ."#$%& ($ 1#0&1
´ 100 = 92,55,555 ´ 100 = 20%
Fixed cost = Contribution – Profit = (1,35,00,000 ´ 20%) – 12,00,000 = `15,00,000

,(=&> !+1- 2A,55,555

(ii) Break-even sales (in `) = )? *#-(+
= 45%
= `75,00,000

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(iii) Profit = Contribution – Fixed cost = (50,000 ´ 450 ´ 20%) – 15,00,000 = `30,00,000

MAY – 2022 – 5 Marks

Top-tech manufacturing company is presently evaluating two possible machines for the
manufacture of superior pen-drives. The following information is available:

Particulars Machine A Machine B

Selling price per unit `400.00 `400.00
Variable cost per unit `240.00 `260.00
Total fixed costs per year `350 lakhs `200 lakhs
Capacity (in units) 8,00,000 10,00,000
Required:
(i) Recommend which machine should be chosen?
(ii) Would you change your answer, if you were informed that in near future demand will be
unlimited and the capacities of the two machines are as follows?
Machine A – 12,00,000 units
Machine B – 12,00,000 units
Why?

Solution
(i) Statement of Profit
Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 8 lakhs 10 lakhs
Total contribution (`) 1,280 lakhs 1,400 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 930 lakhs 1,200 lakhs
Machine B should be chosen as it gives more profit than Machine A.

(ii) Statement of Profit

Particulars Machine A Machine B
Contribution per unit (`) 400 – 240 = 160 400 – 260 = 140
Capacity (units) 12 lakhs 12 lakhs
Total contribution (`) 1,920 lakhs 1,680 lakhs
Less: Fixed cost (`) 350 lakhs 200 lakhs
Profit 1,570 lakhs 1,480 lakhs
Machine A should be chosen as it gives more profit than Machine B.

DEC – 2021 – 10 Marks

AZ company has prepared its budget for the production of 2,00,000 units. The variable cost per
unit is `16 and fixed cost is `4 per unit. The company fixes its selling price to fetch a profit of
20% on total cost.

You are required to calculate:

(i) Present break-even sales (in Rs. and in quantity)

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(ii) Present profit-volume ratio
(iii) Revised break-even sales in Rs and the revised profit-volume ratio, if it reduces its selling
price by 10%.
(iv) What would be revised sales in quantity and the amount, if a company desires a profit
increase of 20% more than the budgeted profit and selling price is reduced by 10% as above
in point (iii).

Solution
(i) Present Fixed cost = 4 ´ 2,00,000 = `8,00,000
Present Profit = Total cost ´ 20% = (16 + 4) ´ 20% = `4
Present Selling price = Cost + Profit = (16 + 4) + 4 = `24
Contribution = Selling price – Variable cost = 24 – 16 = `8
<(=&> !+1- 9,55,555
Present Break-even sales units = .+$-*(HF-(+$ I&* F$(- = 9
= 1,00,000 units
Present Break-even sales value = 1,00,000 ´ 24 = `24,00,000

.+$-*(HF-(+$ 9
(ii) Present profit-volume ratio = /&00($% I*(!&
´100 = 4; ´100 = 33.33%

(iii) New Selling price per unit = 24 – 10% = `21.60

New contribution per unit = 21.60 – 16 = `5.60
A.J5
Revised PV ratio = 42.J5 ´100 = 25.93%
9,55,555
Revised break-even sales = 4A.C8%
= `30,85,229

(iv) Required profit = Existing profit ´ 120% = (4 ´ 2,00,000) ´ 120% = `9,60,000

@&LF(*&> I*+,(-K<(=&> !+1- C,J5,555K9,55,555
Required sales quantity = .+$-*(HF-(+$ I&* F$(-
= A.J5
= 3,14,286 units
Required sales value = 3,14,286 ´ 21.60 = `67,88,578

JULY – 2021 – 5 Marks

LR Ltd. is considering two alternative methods to manufacture product it intends to market. The
two methods have a maximum output of 50,000 units each and produce identical items with a
selling price of `25 each. The costs are:
Method – I Method – II
Semi-Automatic (`) Fully automatic (`)
Variable cost per unit 15 10
Fixed costs 1,00,000 3,00,000
You are required to calculate:
(iv) Cost Indifference Point in units. Interpret your results.
(v) The Break-even point of each method in terms of units

Solution
(i) Let cost indifference units = y
Thus, Total cost of Method – I = Total cost of Method – II

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1,00,000 + 15y = 3,00,000 + 10y
5y = 2,00,000
y = 40,000
At y = 40,000 units, cost of the two methods will be equal.
If quantity produced is more than 40,000 units than option where variable cost per unit is low
i.e. Method - II will have greater benefits in term of cost. If quantity produced is less than
40,000 units than option with lowest fixed cost i.e. Method – I will have greater benefits in
terms of total cost.

(ii) Statement of Break-even point

Particulars Method – I Method - II
Contribution per unit (A) 25 – 15 = 10 25 – 10 = 15
Fixed cost (B) 1,00,000 3,00,000
Break-even point (in units) (B÷A) 10,000 20,000

JAN – 2021 – 5 Marks

During a particular period, ABC Ltd. has furnished the following data:
Sales `10,00,000
Contribution to sales ratio 37% and
Margin of safety is 25% of sales
A decrease in selling price and decrease in the fixed cost could change the “contribution to sales
ratio” to 30% and “margin of safety” to 40% of the revised sales. Calculate:
(i) Revised Fixed Cost
(ii) Revised Sales and
(iii) New Break-Even Point

Solution
Existing variable cost ratio = 100 – Contribution to sales ratio = 100 – 37% = 63%
Existing variable cost = 10,00,000 × 63% = `6,30,000
New variable cost = Existing variable cost = `6,30,000
New variable cost ratio = 100 – 30% = 70%
J,85,555
New sales = N5%
= `9,00,000
New Margin of safety = 9,00,000 × 40% = `3,60,000
New Break-even point = 9,00,000 – 3,60,000 = `5,40,000
New Fixed cost = New Break-even point × PV Ratio = 5,40,000 × 30% = `1,62,000

JAN – 2021 – 10 Marks

Two manufacturing companies A and B are planning to merge. The details are as follows:
A B
Capacity utilization (%) 90 60
Sales (`) 63,00,000 48,00,000

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Variable Cost (`) 39,60,000 22,50,000
Fixed Cost (`) 13,00,000 15,00,000
Assuming that the proposal is implemented, calculate:
(i) Break-Even sales of the merged plant and the capacity utilization at that stage.
(ii) Profitability of the merged plant at 80% capacity utilization.
(iii) Sales Turnover of the merged plant to earn a profit of `60,00,000.
(iv) When the merged plant is working at a capacity to earn a profit of `60,00,000, what
percentage of increase in selling price is required to sustain an increase of 5% in fixed
overheads.

Solution
(i) Statement of Profit (`in lakhs)
Particulars Plant A Plant B Total
Sales 63÷90% = 70 48÷60% = 80 150
(-) Variable Cost 39.6÷90% = 44 22.5÷60% = 37.50 81.50
Contribution 26 42.50 68.50
(-) Fixed Cost 13 15 28
Profit 13 27.50 40.50

.+$-*(HF-(+$ J9,A5,555
Overall P\V Ratio = /#0&1
× 100 = 2,A5,55,555 × 100 = 45.67%
<(=&> .+1- 49,55,555
Overall Break-even point (in `) = OP&*#00 )\? @#-(+ = ;A.JN%
= `61,30,939
R*&#S6&P&$ 1#0&1 J2,85,C8C
Break-even point capacity = E+-#0 /#0&1 #- 255% 0&P&0 × 100 = 2,A5,55,555 × 100 = 40.87%
(ii) Sales at 80% level = 1,50,00,000 × 80% = `1,20,00,000
Profit = Contribution – Fixed Cost = (1,20,00,000 × 45.67%) – 28,00,000 = `26,80,400
<(=&> .+1-KT&1(*&> )*+,(- 49,55,555KJ5,55,555
(iii) Desired Sales = OP&*#00 )\? @#-(+
= ;A.JN%
= `1,92,68,867
(iv) Increase in fixed cost = 28,00,000 × 5% = `1,40,000
2,;5,555
\ Percentage increase in selling price = 2,C4,J9,9JN × 100 = 0.726%

NOV – 2020 – 5 Marks

Moon Ltd. produces products ‘X’, ‘Y’ and ‘Z’ and has decided to analyse it’s production mix in
respect of these three products – ‘X’, ‘Y’ and ‘Z’.
You have the following information:
X Y Z
Direct materials (`) per unit 160 120 80
Variable overheads (`) per unit 8 20 12
Direct labour:
Departments: Rate per hour (`) Hours per unit Hours per unit Hours per unit
X Y Z
Department-A 4 6 10 5

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Department-B 8 6 15 11
From the current budget, further details are as below:
X Y Z
Annual production at present (in units) 10,000 12,000 20,000
Estimated selling price per unit (`) 312 400 240
Sales department estimate of possible sales 12,000 16,000 24,000
in the coming year (in units)
There is a constraint on supply of labour in Department-A and its manpower cannot be increase
beyond its present level.
Required:
(i) Identify the best possible product mix of Moon Ltd.
(ii) Calculate the total contribution from the best possible product

Solution
Present supply of labour hours in Department-A
= (10,000 × 6) + (12,000 × 10) + (20,000 × 5) = 2,80,000 labour hours

Statement of Contribution
Particulars X Y Z
Selling price per unit 312 400 240
(-) Direct material per unit 160 120 80
(-) Labour cost per unit
Department A 4×6 = 24 4×10 = 40 4×5 = 20
Department B 8×6 = 48 8×15 = 120 8×11 = 88
(-) Variable overheads per unit 8 20 12
Contribution per unit 72 100 40
Labour hours per unit 6 10 5
Contribution per labour hour 12 10 8
Rank I II III

Statement of Product Mix and Contribution

Product Units Labour hours Labour Hours Contribution
per unit consumed
X 12,000 6 72,000 72,000×12 = 8,64,000
Y 16,000 10 1,60,000 1,60,000×10 =
16,00,000
Z 48,000÷5 = 5 (Bal. fig.) 48,000 48,000×8 = 3,84,000
9,600
37,600 2,80,000 28,48,000

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NOV – 2019 – 5 Marks
When volume is 4,000 units, average cost is `3.75 per unit. When volume is 5,000 units, average
cost is `3.50 per unit. The Break-even point is 6,000 units.
Calculate:- (i) Variable cost per unit; (ii) Fixed Cost and (iii) Profit Volume Ratio

Solution
Total cost when volume is 4,000 units = 4,000 × 3.75 = `15,000
Total cost when volume is 5,000 units = 5,000 × 3.50 = `17,500
T(,,&*&$!& ($ E+-#0 .+1- 2N,A5562A,555
Variable cost per unit = T(,,&*&$!& ($ U$(-1
= A,5556;,555
= `2.50
Fixed cost = Total cost – Variable cost = 15,000 – (4,000 × 2.50) = `5,000
<(=&> !+1-
Break-even point (in units) = .+$-*(HF-(+$ I& *F$(-
<(=&> !+1- A,555
Contribution per unit = R*&#S6&P&$ I+($- = J,555 = `0.83
Selling price pre unit = Variable cost per unit + Contribution per unit = 2.50 + 0.83 = `3.33
.+$-*(HF-(+$ I&* F$(- 5.98
P\V Ratio = /&&0($% I*(!& I&* F$(- × 100 = 8.88 × 100 = 24.92%

MAY – 2019 – 5 Marks

M/s Gaurav Private Limited is manufacturing and selling two products:
‘BLACK’ and ‘WHITE’ at selling price of `20 and `30 respectively.
The following sales strategy has been outlined for the financial year 2019-20:
(i) Sales planned for the year will be `81,00,000 in the case of ‘BLACK’ and `54,00,000 in
the case of ‘WHITE’.
(ii) The selling price of ‘BLACK’ will be reduced by 10% and that of ‘WHITE’ by 20%.
(iii) Break-even is planned at 70% of the total sales of each product.
(iv) Profit for the year to be maintained at `8,26,200 in the case of ‘BLACK’ and `745,200 in
the case of ‘WHITE’. This would be possible by reducing the present annual fixed cost of
`42,00,000 allocated as `22,00,000 to ‘BLACK’ and `20,00,000 to ‘WHITE’.
You are required to calculate:
(1) Number of units to be sold of ‘BLACK’ and ‘WHITE’ to Break even during the financial
year 2019-20.
(2) Amount of reduction in fixed cost product-wise to achieve desired profit mentioned at (iv)
above.

Solution
(i) Statement showing Break Even Sales
Particulars BLACK WHITE
Sales Planned (in `) 81,00,000 54,00,000
Break-even sales % 70% 70%
Break-even sales (in `) (A) 56,70,000 37,80,000
Selling price per unit (in `) (B) 18 24

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Break-even sales (in units) (A ÷ B) 3,15,000 2,25,000

(ii) Statement Showing Fixed Cost Reduction

Particulars BLACK WHITE
Profit to be maintained (`) (A) 8,26,200 7,45,200
Margin of Safety (30% × Sales) (B) 24,30,000 16,20,000
P/V Ratio (A ÷ B) 34% 46%
Desired Contribution (Sales × P/V Ratio) 27,54,000 24,84,000
Less: Desired Profit 8,26,200 7,45,200
Target Fixed Cost 19,27,800 17,38,800
Present Fixed Cost 22,00,000 20,00,000
Required reduction in fixed cost 2,72,200 2,61,200

NOV – 2018 – 10 Marks

A manufacturing company is producing a product ‘A’ which is sold in the market at `45 per unit.
The company has the capacity to product 40,000 units per year. The budget for the year 2018-19
projects a sale of 30,000 units. The costs of each unit are expected as under:
Material `12
Wages `9
Overheads `6
Margin of safety is `4,12,500
You are required to:
(i) Calculate fixed cost and break-even point
(ii) Calculate the volume of sales to earn profit of 20% on sales
(iii) If management is willing to invest `10,00,000 with an expected return of 20%, calculate
units to be sold to earn this profit.
(iv) Management expects additional sales if the selling price is reduced to `44. Calculate units
to be sold to achieve the same profit as desired in above (iii).

Solution
;A6246C6J
P/V Ratio = ;A
× 100 = 40%
)*+,(-
Margin of safety = )/? @#-(+
)*+,(-
4,12,500 = 5.;5
Profit = 1,65,000
(i) Profit = Contribution – Fixed Cost
4,12,500 = (30,000 × 45 × 40%) – Fixed Cost
Fixed Cost = 5,40,000 – 1,65,000 = `3,75,000

Break-even point = Total sales – Margin of Safety = (30,000 × 45) – 4,12,500 = `9,37,500

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(ii) Let required sales units = y
Total required sales value = 45y
<(=&> !+1-KT&1(*&> I*+,(-
Desired sales = )/? @#-(+
8,NA,555K(;AW×45%)
45y = 5.;5
18y = 3,75,000 + 9y
9y = 3,75,000
y = 41,666.67 units

(iii) Let required sales units = y

<(=&> !+1-KT&1(*&> )*+,(-
Desired sales units = .+$-*(HF-(+$ I&* F$(-
8,NA,555K4,55,555
y= ;A6246C6J
= 31,945 units (approx.)

(iv) Let required sales units = y

<(=&> !+1-KT&1(*&> )*+,(-
Desired sales units = .+$-*(HF-(+$ I&* F$(-
8,NA,555K4,55,555
y= ;;6246C6J
= 33,824 units (approx.)

MAY – 2018 – 5 Marks

Following figures have been extracted from the books of M/s RST Private Limited:
Financial Year Sales (`) Profit\Loss(`)
2016-17 4,00,000 15,000 (loss)
2017-18 5,00,000 15,000 (Profit)
You are required to calculate:
(i) Profit Volume Ratio
(ii) Fixed Costs
(iii) Break Even Point
(iv) Sales required to earn a profit of `45,000
(v) Margin of Safety in Financial Year 2017-18

Solution
T(,,&*&$!& ($ )*+,(- 85,555
(i) Profit Volume Ratio = T(,,&*&$!& ($ /#0&1
× 100 = 2,55,555 × 100 = 30%
(ii) Profit in 2017-18 = Contribution – Fixed Cost
15,000 = (5,00,000 × 30%) – Fixed Cost
Fixed Cost = 1,35,000
<(=&> .1+- 2,8A,555
(iii) Break-even point = )/? @#-(+
= 85%
= `4,50,000
<(=&> !+1-KT&1(*&> )*+,(- 2,8A,555K;A,555
(iv) Sales to earn a profit of `45,000 = )/? @#-(+
= 85%
= `6,00,00
(v) Margin of Safety = Actual sales – Break-even sales = 5,00,000 – 4,50,000 = `50,000

Sunil Keswani PYQs of Cost & Management Accounting

CA Sunil Keswani
151
MAY – 2018 – 10 Marks
PH Gems Ltd. is manufacturing readymade suits. It has annual production capacity of 2,000 pieces.
The Cost Accountant has presented following information for the year to the management:
Particulars Amount (`) Amount (`)
Sales 1,500 pieces @ `1,800 per piece 27,00,000
Direct Material 5,94,200
Direct Labour 4,42,600
Overheads (40% Fixed) 11,97,000 22,33,800
Net Profit 4,66,300
Evaluate following options:
(i) If selling price is increased by `200, the sales will come down to 60% of the total annual
capacity. Should the company increase its selling price?
(ii) The company can earn a profit of 20% on sales if the company provide TIEPIN with ready-
made suit. The cost of each TIEPIN is `18. Calculate the sales to earn a profit of 20% on
sales.

Solution
(i) Evaluation of option (i)
New Selling price = 1,800 + 200 = `2,000
New Sales Quantity = 2,000 × 60% = 1,200 Pieces
Particulars Amount (`)
Sales (1,200 × `2,000) 24,00,000
A,C;,455 4,75,360
Less: Direct Material % 2,A55
× 1,200(
;,;4,J55 3,54,080
Less: Direct Labour % 2,A55
× 1,200(
22,CN,555×J5% 5,74,560
Less: Variable Overheads % × 1,200(
2,A55

Contribution 9,96,000
Less: Fixed Costs (11,97,000 × 40%) 4,78,000
Profit 5,17,200
If the price is increased by `200 than quantity is reducing by 20% (300 on 1,500). Through this
step, the profit of the firm will rise by `50,900 from the existing level. Since there is increase in
profit, thus it may be recommended to accept this policy.

(ii) Evaluation of option (ii)

Calculation of P/V Ratio
Selling price per unit 1,800.00
A,C;,455
Less: Direct material per unit % 2,A55
( 396.13
Less: cost of Tie pin 18.00
;,;4,J55
Less: Direct labour per unit % 2,A55
( 295.07

Sunil Keswani PYQs of Cost & Management Accounting

CA Sunil Keswani
152
22,CN,555×J5%
Less: Variable Overheads % 2,A55
( 478.80
Contribution 612.00
J24
P/V Ratio = 2,955 × 100 = 34%
Let sales required to earn profit of 20% = y
<(=&> .+1-KT&1(*&> )*+,(-
Desired sales = )/? @#-(+
;,N9,955K5.45W
y= 8;%
0.34y = 4,78,800 + 0.2y
y = `34,20,000
Thus, sales required to earn a profit of 20% on sales = R.s 34,20,000
8;,45,555
Sales units required to earn a profit of 20% of sales = 2,955
= 1,900 units

Sunil Keswani PYQs of Cost & Management Accounting