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Session 9

The document discusses basic cost management terms like direct vs indirect costs, fixed vs variable costs, and costing techniques. It also covers cost-volume-profit analysis, including calculating the break-even point, margin of safety, contribution margin ratio, and using CVP for decision making. Several numerical problems are provided as examples of applying these cost concepts.

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18 views

Session 9

The document discusses basic cost management terms like direct vs indirect costs, fixed vs variable costs, and costing techniques. It also covers cost-volume-profit analysis, including calculating the break-even point, margin of safety, contribution margin ratio, and using CVP for decision making. Several numerical problems are provided as examples of applying these cost concepts.

Uploaded by

royrahul2504
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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PROF.

SITANGSHU KHATUA

Cost Management
Basic Cost Terms & Concepts

 By nature: Material, Labour & Expenses


 By function: Production, Administration,S&D
 Direct & Indirect Cost
 Fixed, variable & semi-variable cost
 Controllable & uncontrollable cost
 Capital & revenue cost
 Historical & predetermined cost
 Budgeted & Standard cost
 Normal & abnormal cost
Basic Cost Terms & Concepts

 Out-of pocket Cost


 Differential Cost
 Sunk Cost
 Imputed or Notional Cost
 Opportunity Cost
 Replacement Cost
 Committed Cost
 Joint Cost
 Discretionary Cost
Basic Cost Terms & Concepts

 Cost Unit
 Cost Center
 Cost Tracing
 Cost Allocation
 Cost Driver
 Costing Techniques: Historical, Absorption,
Marginal, Direct, Standard &Uniform
Costing.
Cost-volume-profit (CVP) / BEPanalysis
 C-V-P relationship
 Break-even point (BEP)
 Profit= sales revenue- total cost
 Unit contribution = sale price per unit – variable cost
per unit
 BEP quantity= total fixed cost/unit contribution
 BEP sales value = BEP quantity* sale price per unit =
Total Fixed cost/ (c/s) ratio
 Contribution margin or p/v ratio or c/s ratio =
contribution per unit/ sale price per unit = (total
contribution/ total sales )*100 = ( change in profit/
change in sales value)*100
Cost-volume-profit (CVP) / BEPanalysis

 MOS =( Sales unit – BEP unit )or (sales value-


BEP value)
 p/v ratio = c/s ratio = (contribution/sales)
*100
p/v ratio = (( Fixed cost +
Profit)/sales)*100

Hence, Profit =( Sales * P/V ratio in %) – Fixed


cost
Numerical Problems:1

 Cost information for monthly operations of


XYZ ltd. Are as follows:
Sales : Rs.100000
VCs : Rs.35000
FCs : Rs.30000
Sales unit : 50000
Based on above & an assumption that unit sales
price is reduced to be Rs.1.8, what would be
the BEP & MOS in unit at the changed price
level?
Numerical Problems:2

Total sales (in Total Costs (in


 Assume ratio of VC to
Rs.’000) Rs.’000)
sales & fixed costs are
same for both the
Year I 7000 5800 years.
 Find out: p/v ratio,
fixed cost, BEP and
Year II 9000 6600  Budgeted profit for the
year III for a budgeted
sales of Rs. 1 crore.
Numerical Problems:3

Item Amount
 If it is expected that
Selling price/unit Rs.150 both variable and fixed
Variable labour & Rs.80 costs are increased by
material cost/unit
Variable Rs.15
10% in the next year &
overhead/unit there will be no change
Fixed costs Rs.750000 in selling price, what
would be % increase in
Sales in units 20000 unit
units sold to earn the
same profit of the
current year?
Numerical Problems:4

Direct Rs.6
 PQR ltd. Produces a Material
special component in
automatic transmission. Direct labour Rs.5
No. of unit sold is 500000
p.a. @ Rs.28 per unit. Other costs: variable Fixed

Unit cost data is given in


Manufacturing 2 7
the table. Find out the
unit contribution margin Distribution 4 3
if no. unit manufactured
are sold.
Numerical Problems:5

A B C
 PQR ltd. Produces 3 Per unit
data
products A, B & C.
Relevant data is given in Sales price 30 28 32
the table. Find out the
maximum profit with the Material
cost
11 12 9

following constraint:
Direct 4 6 7
1. M/c hr capacity:50000 hrs labour
2. Fixed overhead:Rs.50000
Variable 9 5 9
3. Min qty: A-1000, B-2000, overhead
C-3000
M/c hr 2 3 4
Max qty: A- 20000, B- reqd.
15000, C-11000.
Numerical Problems:6
Item Amount (Rs.)

Direct materials 205000


 Figures are for P & CO.
for the year of XXXX.
Calculate BEP & effect
Direct labour 75000
on BEP of an increase
of 10% in :
Fixed overheads 60000
1. Fixed expenses; and
2. Variable expenses.
Variable overheads 100000

Sales 500000

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