MARGINAL COSTING FLOWCHART BY CA RAKESH AGRAWAL

BASIC FORMULAE SHORT CUT FORMULAE BREAK EVEN POINT 4. COST BEP : It is the point at
which total cost (i.e. V.C. + F.C.)
Sales – Variable Cost = Contribution 1. NORMAL BEP : It is the sales under the two alternatives is exactly
Changein cost
Variable cost p.u.  activity at which there is no profit no the same. The alternative with
Sales – Contribution = Variable Cost
Changein output lower fixed cost is cheaper below
loss. It can be calculated as follows
Sales = Variable Cost + Contribution Cost BEP and alternative with lower
Changein profit TotalFixedCost variable cost is cheaper above Cost
Contribution per unit  BEP (units) =
Contribution – Fixed Cost = Profit/(Loss) Changein output Contribution Per Unit BEP
TotalFixedCost Diff.in fixedcost
Contribution = Profit + Fixed Cost Changein cost BEP (Rs) = Cost BEP =
Variable cost Ratio  x 100 P/V Ratio Diff.in v.c.p.u.
Contribution = Fixed Cost – Loss Changein sales
BEP (% capacity) =
Contribution – Profit = Fixed Cost
TotalFixedCost MARGINAL COSTING V/S
Contribution + Loss = Fixed Cost C hange in Profit
P.V. Ratio  x 100 Contribution at 1% capacity ABSORPTION COSTING
C hange in sales
Variable Cost + Fixed Cost = Total Cost 2. CASH BEP : It is the sales activity 1. In marginal costing we treat
Fixed Cost = Total Cost – Variable Cost BEP Sales at which there is no cash loss. It fixed cost as period cost
means contribution earned is exactly whereas under absorption
Variable Cost = Total Cost - Fixed Cost
ACTUAL SALES equal to cash fixed cost costing we treat fixed cost as
Profit Volume Ratio (PVR) MOS Sales Cash FixedCost product cost.
MOS sales Cash BEP =
Contribution MOS  x 100 Contb.p.u.or PVR 2. In marginal costing closing
 x 100 Total sales stock is valued at variable
Sales 3. COMPOSITE BEP : It is calculated cost of production. However
PVR x Sales = Contribution Profit = MOS sale x P/V Ratio for multiple products together. It is under absorption costing
the composite (i.e. combined) sales at closing stock is valued at
Contribution Profit which there is no profit no loss. It can
Sales  MOS sales total cost of production.
PVR PVR be calculated as
3. In marginal costing value of
Overallfixedcost stock is lower than
Level of activity to earn desired profit Profit Composite BEP =
 PV Ratio OverallPVR absorption costing.
(Desiredprofit Fixed cost) MOS sales
 O verallc ontribution 4. Marginal costing rewards
Overall PVR = x 100
Contb.p.u.or PVR or Cont.at1% cap. © Copyright Reserved with the Author O veralls ales sales and absorption costing
rewards production.
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absorption costing is used for
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CA Rakesh V. Agrawal accounting.