1. From the following information, prepare an income statement under Marginal Costing.

Product A in $ Product B in $ Product C in $

Direct Material 15,000 60,000 6,000
Direct Wages 18,000 18,000 3,000
Factory Overhead - Fixed 6,000 3,000 3,000
Factory Overhead - Variable 7,800 18,000 9,000
Selling Overhead – Fixed 3,000 1,800 1,200
Selling Overhead – Variable 4,200 12,000 6,000
Sales 64,000 1,22,000 32,000

2.
The fixed costs for the year are $60,000. Selling price per unit is $15 and Variable cost per unit is $10. Calculate BEP
output.

3. Fixed costs for the year are $60,000. The sales for the period are $400,000 and variable costs are amounted to $300,000.
Calculate BEP sales.

4. From the following data, calculate the number of units to be sold to earn a profit of $120,000.

Selling Price per unit $ 50

Variable Cost per unit $ 40
Fixed Costs $ 80,000
5.
Sales = $600,000
Variable cost = $420,000
Fixed cost = $ 120,000
Calculate the sales value required to earn a profit of $90,000.

6. Sales = $ 100,000
Variable cost = $60,000
Fixed cost = $30,000
Find out (i) P/V Ratio (ii) BEP Sales (iii) Sales required to earn a profit of $20,000

7. A plant produces a product which costs $ 3 per unit when produced in quantities of 10,000 units and $ 2.50 per unit
when produced in quantities of 20,000 units. Find out fixed costs.

8. The sales turnover and profit during the two periods were as follows:
 Year Sales - $ Profit - $
2014 2,000,000 200,000
2015 3,000,000 400,000
Calculate: (i) P/V Ratio (ii) Sales required to earn a profit of $500,000

9. The directors of Jotin Ltd. are considering the sales budget for the next budget period. The following information has
been made available from the cost records.
Product A Product B
Direct Material $ 20 $ 25
Direct Wages @ $ 2 per 5 hours 7.5 hours
hour
Selling Price 60 100
Variable overheads 100% of direct wages
Fixed overheads $ 10,000 per annum.
You are required to present to the management a statement showing the marginal cost of each product, and to
recommend which of the following sales mix should be adopted.
i) 450 units of A and 300 units of B
ii) 900 units of A only
iii) 600 units of B only
iv) 600 units of A and 200 units of B

10. A Manufacturer earns an average profit of $ 6 per unit at a selling price of $ 30 by producing and selling 30,000 units at
60% of the potential capacity. The composition of his cost of sales are:
Direct Material $8
Direct Wages $2
Works O/H $ 12 (50% Fixed)
Selling O/H $ 2 (25% Variable)
During the year, he intends to produce the same number but anticipates that:
i) Fixed charges will increase by 10%
ii) Rates of direct labour will increase by 20%
iii) Rate of Material will increase by 5%
iv) Selling price cannot be increased
Under these circumstances he obtains an order for further 20% of the capacity. What minimum price will you
recommend for accepting the order to give the manufacturer an overall profit of $ 180,000?
11.

Qiming Chen sells a popular brand of men’s sports shirts at an average price of $28 each. He purchases the shirts from a

supplier at a unit cost of $18. The costs of operating his shop are all fixed costs and amount to $54,000 a year. He pays

commission to his salesman at the rate of $1 for every shirt sold through the particular salesman.

You are required to compute:

i) How many shirts must be sold in a year to break-even?

 ii) The sales revenue at the break-even.

iii) The monthly sales revenue required to earn a net profit before tax of $45,000 in a year.

Solution:
Selling Piece = 28
Variable Cost = 18+1 = 19
Contribution = 28 -19 =9
i) BEP Unit = 54,000/9 = 6,000 units (Shirts).
ii) BEP Sales = 6,000*28 = $168,000/-
iii) Sales revenue to earn desired profit of $45,000/- = (F.C.+ Profit)*S/C = (54,000+45,000)*28/9= $308,000/-
Monthly Sales revenue = $308,000/12 = $25,667/-

12. From the following data, calculate:

i) Profit Volume Ratio
ii) BEP expressed in amount of sales in USD
iii) Number of units that must be sold to earn a profit of $ 60,000
Sales Price $ 20 per unit
Variable manufacturing expenses $ 11 per unit
Variable selling cost $ 3 per unit
Fixed factory overhead $ 540,000 p.a.
Fixed selling cost $ 252,000 p.a.

13. (i) From the following details you are required to determine the break-even point in units and in amount.
Direct Labour $ 100 per unit
Direct Material · $ 40per unit
Variable overhead 100 % of direct labour
Fixed overheads $ 60,000
Selling price $ 400 per unit
(ii) In order to increase the efficiency in production, the concern installs improved machinery, which results increase of
fixed overhead by $ 20,000, but the variable overhead is reduced by 40%. Calculate the revised BEP in units and in
Amount.

Solution:
(i) Computation of Break-even point
BEP = fixed cost /selling price per unit –variable cost per unit
Fixed cost = $ 60,000
Variable Cost
Direct material = 40
. Direct laour = 100
Variable overhead 100% } = $ 100
On direct labour
$ 240
BEP = 60,000 /400-240
= 60,000 /160
BEP in unit = 375 unit
 BEP in unit = BEP unit x selling price
= 375 unit x $ 400 = = $150,000

(ii)
In order to increase the production : The New BEP
Fixed overhead = $ 60,000
( +) Additional = $ 20,000
Total fixed cost = $ 80,000
Variable overhead is reduced by 40%
Variable Cost
Direct Material = $ 40
Direct Labour = $ 100
Variable overhead 100 x 60/100 = $ 60
Total Variable .cost $ 200
Revised BEP = fixed cost/(Selling price per unit – Variable cost per unit)
=80,000 /400-200 = 80,000/200
BEP in units = 400 units
BEP in value = 400 x 400 = $ 1,60,000
14. From the following data you are required to calculate the break-even point and net sales value at this point.
Selling price per unit $ 25
Direct material cost per unit $8
Direct labour cost per unit $5
Fixed overhead$ 24,000
Variable overheads @ 60% on Direct Labour.
Trade discount 4%
If sales are 15% and 20% above the break-even volume determine the net profits.

Solution:
(i) BEP = fixed/ selling price per unit – variable cost unit
=24,000 /24-16
= 24,000 /8
BEP in units = 3000 units
BEP in value = BEP Units x Selling price
= 3000 units x $ 24
= $ 72,000
Workings :
(a) Selling Price :
Selling price per unit = $ 25.00
Less : Trade discount 4% = 1.00 [ 25.00 x 4/100]
Selling Price = 24.00

(b) Variable Cost :

Direct Material cost per unit = $8.00
Direct labour cost per unit = $ 5.00
Variable overhead 60% on Direct Labour = $ 3.00 [5 x 60/100]
Total Variable Cost } = $ 16.00
 (ii) If sales are 15% above the break-even volume, find out the profit.

Formula :
Given Sales x P/V ratio = xx
Less : Fixed Cost = xx
Profit = xx
BEP Sales is = 72,000
15% above the break even sales = 10,800
Increased sale volume = 82,800
Therefore, 82,800 x 33.33/100 = 27,597 i.e . , 27,600
Less : Fixed cost = 24,000 24,000
. profit = 3,597 3,600

NOTE : Find the p/v radio

P/V ratio = contribution /sales
Contribution =sales –Variable cost
=24-16 = $ 8
=8/24 x100

15. From the following particulars find out the BEP, what will be the selling price per unit if BEP is to be brought down to
9,000 units?
Variable cost per unit $ 75
Fixed expenses $ 270,000
Selling price per unit $ 100

Solution:
BEP =fixed cost / selling price per unit –variable cost per unit
Fixed Cost = $ 270,000
Selling price = $ 100
Variable cost = $ 75
= 270,000 /100 -75
BEP in units = 10,800 units
BEP in value = 10,800 units x Selling price
= i.e., 10,800 x 100
= $ 1,080,000
If BEP is brought down to 9,000 units
BEP = fixed cost (270,000) /contribution per price (X)
Contribution per unit is treated as X
X =270,000 /9,000 =30
Therefore, New Selling price is $ 105 i.e., ($ 75 + $ 30 = $ 105)
16. The P/V ratio of a firm dealing in Electrical equipment is 50% and the margin of safety is 40%. Find out BEP and the net
profit, if sales volume is $ 5,000,000
Solution :
(i) Contribution
Given sales x P/V ratio = contribution
50,00,000 x50 /100 = $ 25,00,000
 (ii) Break even sales = (Actual Sales – BEP Sales = M.O.S. (or)
Actual Sales – M.O.S. = BEP Sales
Sales =$ 50,00,000
Less :Margin of safety 40% on sales =$ 20,00,000
Break even sales = $ 30,00,000
(iii) Fixed cost
BEP(30,000) = fixed cost (X) / P/V Ratio (50%)
X = 30,00,000 x 50/500
Fixed assets = $ 15,00,000

(iv) Find out profit :

Contribution = Fixed cost + Profit or Fixed cost – Loss
Contribution = $ 25,00,000
Less : Fixed Cost = $ 15,00,000
Profit = $ 10,00,000
17. Assuming that the cost structure and selling prices remain the same in both the periods. Compute the following :
(a) Profit volume Ratio
(b) BEP for sales
(c) Profit when sales are $ 1,00,000
(d) Sales required earning a profit of $ 20,000
(e) Safety margin in both the periods.
Period Sales $ Profit
I 1,20,000 9,000
II 1,40,000 13,000
Solution :
(a) Profit Volume Ratio = Difference of profit / difference of sales x 100
= 13,000 – 9,000 / 1, 40,000 – 1,20,000 x 100
=4,000 /20,000 x 100
P/V Ratio = 20%

(b) BEP for sales = fixed cost / P/V Ratio

=15,000/20/100
BEP Sales =$ 75 ,000
NOTE : Fixed cost =contribution – profit
= 1,20,000 x 20/100 -9,000
=24,000 -9,000 =15,000
[ therefore ,contribution = given sales x P/V Ratio]
(c) Profit when sales are $ 1,00,000
Profit = Contribution – Fixed cost
= 1,00,000x 20/100 -15,000
= 20,000 -15,000 =5,000
(d) Sales required to earn a profit of $ 20,000
Fixed Cost + Desired Profit / P/V Ratio
15,000 + 20,000 /20/100 = $ 1,75 000
(e) Safety margin in both the periods
Actual Sales – BEP Sales = Margin of safety
(1) 1,20,000 -75,000 – 45,000
 (11) 1,40,000 – 75,000 – 65,000
PROBLEMS AND SOLUTIONS

Problem 1. From the following particulars you are required to calculate BEP.

(a) Fixed cost $ 200, 000, selling price per unit $. 40, variable cost per unit $ 15.

(b) Fixed cost $ 40,000, sales $. 100,000, variable cost $. 30,000.

(a) Computation of BEP = fixed cost /Selling price per unit – Variable cost per unit

Fixed Cost = $ 200,000

Selling price per unit = $ 40 per unit

Variable cost per unit = $ 15 per unit

= 200,000 /40-15

BEP in units = 8,000

BEP in value =BEP units x Selling price per unit

=8,000×40

=$ .320,000

(b) BEP = Fixed Cost x Sales/Sales – Variable Cost

=40,000 x100, 000 / 100,000 x 30,000

=400,000 /7 = $ 57,142

Problem 2. From the following data calculate break even point expressed in terms of units and also the new BEP if selling price
is reduced by 10%.

Fixed Expenses $

Depreciation 200,000

Salaries 200,000

Variable Expenses

Materials $ 6 per unit

Labour $ 4 per unit

Selling Price $ 20 per unit

Solution:

BEP =fixed Cost /Selling price per unit – Variable cost per unit

= 400,000 /20-10

BEP in units = 40,000 unit

New break-even point if selling price is reduced by 10%

Fixed Cost = $ 400,000

Material = $ 6.00

Labour = $ 4.00

$ 10.00

New Selling price:

Selling Price = $ 20.00

Less: 10% Reduction = $ 2.00

$.18.00

BEP = Fixed Cost /Selling price per unit –variable cost per unit

= 400,000 /8

BEP in units = 50,000 units

Problem 4. The following information relating to a company is given to you:

Calculate BEP.

Sales 700,000

Fixed cost 180,000

Variable cost 400,000

Solution:

BEP = Fixed cost / contribution x sale

Contribution = Sales – Variable cost

= 400,000 – 250,000

= 150,000

BEP = 180,000 /150,000 x 400,000

BEP Sales = 480,000

Present Sales = 400,000

80,000

Based upon the above calculation, sales are to be increased only by $ 80,000 to break even.

= 33.33%

(iii) If sales are 20% above the break even, determine the profit.

Break even sales = $ 72,000

20% increase = $ 14,400

Increased sales volume = $ 86,400

Problem 9. Find out profit from the following data

Sales $ 8,00,000

Marginal cost $ 6,00,000

Break-even sales $ 6,00,000

Solution :

(i) P/V = Contribution / sales x 100

= 20,00,000 /8,00,000 x 100 =25%

(ii) Fixed Expenses

BED (60,00,000) = x 25/100 -1,50,000

Fixed Expenses (X) =$ 1,50.000

(iii) Find out profit _

Contribution = $ 2,00,000

Less : Fixed Expenses = $ 1,50,000

Profit = $ 50,000

Problem 10. P /V ratio is 30% and margin of safety is 40%. Find out the fixed cost and net profit if the actual sales-is $
5,00,000 .

Solution :

Sales = $ 5,00,000

Less : Margin of safety 40% = $ 2,00,000

BEP = $ 3,00,000

NOTE : (Actual Sales – Margin of safety) 3,00,000

Find the Fixed cost.

BEP (3,00,000) = fixed cost (X)

P/V Ratio (30%)

X= 3,00,000 x 30/100 =$ 90,000

Profit or Loss = contribution –fixed cost

=1,50,000 -90,000 =$ 60,000

NOTE : Contribution = Given Sales x P/V ratio

= 5,00,000 X 30/000 =1,50,000