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Cost Accounting - Marginal Costing

The document discusses key concepts in marginal costing such as contribution, profit volume ratio, break even point, margin of safety, indifference point, and shut down point. It provides formulas to calculate these metrics, which are used to determine the profitability of products and sales levels. Marginal costing separates total costs into fixed and variable components to identify contribution and determine the sales level required to cover fixed costs.

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S Usama S
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68 views

Cost Accounting - Marginal Costing

The document discusses key concepts in marginal costing such as contribution, profit volume ratio, break even point, margin of safety, indifference point, and shut down point. It provides formulas to calculate these metrics, which are used to determine the profitability of products and sales levels. Marginal costing separates total costs into fixed and variable components to identify contribution and determine the sales level required to cover fixed costs.

Uploaded by

S Usama S
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Cost Accounting – Marginal Costing___________________________________________________________ 1

MARGINAL COSTING

Statement of profit:-

Particulars Amount
Sales xxx
Less:-Variable cost (xxx)
Contribution xxx
Less:- Fixed cost (xxx)
Profit xxx

1) Sales = Total cost + Profit = Variable cost + Fixed cost + Profit

2) Total Cost = Variable cost + Fixed cost

3) Variable cost = It changes directly in proportion with volume

4) Variable cost Ratio = {Variable cost / Sales} × 100

5) Sales – Variable cost = Fixed cost + Profit

6) Contribution = Sales × P/V Ratio

7) Profit Volume Ratio [P/V Ratio]:-


 {Contribution / Sales} × 100
 {Contribution per unit / Sales per unit} × 100
 {Change in profit / Change in sales} × 100
 {Change in contribution / Change in sales} × 100

8) Break Even Point [BEP]:-


 Fixed cost / Contribution per unit [in units]

 Fixed cost / P/V Ratio [in value] (or) Fixed Cost × Sales value per unit
(Sales – Variable cost per unit)
9) Margin of safety [MOP]
 Actual sales – Break even sales
 Net profit / P/V Ratio
 Profit / Contribution per unit [In units]
10) Sales unit at Desired profit = {Fixed cost + Desired profit} / CMpu
11) Sales value for Desired Profit = {Fixed cost + Desired profit} / P/V Ratio
12) At BE Point, Contribution = Fixed cost
13) Variable cost Ratio = Change in total cost × 100
Change in total sales
14) Indifference Point:
Point at which two Product sales result in same amount of profit.

= ____Change in fixed cost_____ (in units)


Change in variable cost per unit

= ____Change in fixed cost_____ (in units)


Change in contribution per unit

= ____Change in Fixed cost____ (in Rs.)


Change in P/Ratio

= ___Change in Fixed cost____ (in Rs.)


Change in Variable cost ratio

__________________________________________________________________________________________________________
Visit: http://rehanfarhataca.googlepages.com for latest news
For Queries and Suggestions: [email protected] or [email protected]
Cost Accounting – Marginal Costing___________________________________________________________ 2
15) Shut down point:
Point at which each of division or product can be closed

= Maximum (or) Specific (or) Available fixed cost


P/V Ratio (or) Contribution per unit

If sales are less than shut down point then that product is to shut down.

Note:-

1) When comparison of profitability of two products if P/V Ratio of one product is greater than P/V Ratio
of other Product then it is more profitable.

2) In case of Indifference point if Sales > Indifference point, select option with higher fixed cost (or)
select option with lower fixed cost.

__________________________________________________________________________________________________________
Visit: http://rehanfarhataca.googlepages.com for latest news
For Queries and Suggestions: [email protected] or [email protected]

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