# 141 marginal cost statement sales 200000 x 15 3000000

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141 Marginal cost statement Sales (2,00,000 x 15) 30,00,000 Less: variable cost( 2,00,000 x 10) 20,00,000 Contribution 10,00,000 Less: fixed cost 6,00,000 Profit 4,00,000 Illustration 8 Fixed overhead Rs.2,40,000 Variable overhead Rs.4,00,000 Direct wages Rs.3,00,000 Direct materials Rs.8,00,000 Sales Rs.20,00,000 Calculate the break even point and P/V ratio Solution Statement showing contribution Rs. Rs. Sales 20,00,000 Less variable cost Direct materials 8,00,000 Direct wages 3,00,000 Variable overhead 4,00,000 15,00,000 Contribution 5,00,000 P/V ratio = (contribution/ sales) x 100 = (5,00,000 / 10,00,000) x 100 = 50% Break even point = fixed cost/ P/V ratio = 2,40,000 / 50% = Rs.4,80,000 Illustration 9 Marginal cost Rs.4800 Selling price Rs.6000 Calculate P/V ratio

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142 Solution P/V ratio = contribution / sales x 100 = (Rs.6000 Rs.4800)x 100 / Rs.3000 =(Rs.1200 / Rs.3000) x 100 = 40 % Illustration 10 The sales turnover and profits during two periods are as under: Period I : sales Rs.20 lakhs; profit Rs.2 lakhs Period II : sales Rs.30 lakhs; profit Rs.4 lakhs Calculate P/V ratio Solution: P/V ratio = change in profit /change in sales x 100 = (Rs.4,00,000 Rs.2,00,000 x 100)/ (Rs.30,00,000 -Rs.20,00,000) = 2,00,000/10,00,000 x 100 = 20% Illustration 11 The following date are obtained from the records of a company First year second year Rs. Rs. Sales 80,000 100,000 Profit 10,000 14,000 Calculate the break even point Solution B.E.P (Sales ) = Fixed cost / P/V ratio P/V ratio = change in profit/ change in sales x 100 = 4,000 /20,000 x 100 = 20% Fixed cost = contribution profit or sales x P/V ratio Fixed cost = 80,000 x 20 /100 Rs.10,000 = 16,000 10,000 =6,000 B.E.P (sales ) = 6,000 x 100 / 20 = Rs.30,000 Illustration 12 Company earned a profit of Rs.60,000 during the year 2015-16. If the marginal cost and selling price of a product are Rs.8 and Rs.10 per unit respectively. Find out the amount of margin of safety
143 Solution Contribution per unit = selling price marginal cost = Rs.10 Rs.8 = Rs.2 P/V ratio = contribution / sales x 100 = 2/10 x 100 = 20% Margin of safety = Profit / P/V ratio = Rs.60,000 / 20% = Rs.3,00,000 Illustration 13 From the following details find out a. profit volume ratio, b. B.E.P, c. margin of safety Rs. Sales 1,00,000 Total costs 80,000 Fixed costs 20,000 Net profit 20,000 Solution 1. P/V ratio = ( sales variable expenses) / sales x100 = (1,00,000 60,000 )/1,00,000 x 100 = 40 2. B.E.P = Fixed cost / P/V ratio = 20,000 / 40% or 20,000 x 100 / 40 = Rs.50,000 3. Margin of safety = profit / P/V ratio = 20,000 / 40% = 20,000 x 100 / 40 = Rs.50,000 Or Margin of safety = actual sales sales at B.E.P = 1,00,000 50,000 = Rs.50,000

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144 Illustration 14 The following information was obtained from a company in a certain year Rs. Sales 1,00,000 Variable costs 60,000 Fixed costs 30,000 Find the P/V ratio, break even point and margin of safety. Solution P/V ratio = (S V) / S X 100 = (1,00,000 60,000) / 1,00,000 X 100 = 40% Break even point= F / P/V ratio = 30,000 / 40% = Rs.75,000 Margin safety = Profit / P/V ratio = 10,000 / 40% = Rs.25,000 Or = sales break even sales = Rs.1,00,000 Rs.75,000 = Rs.25,000 10.4 REVISION POINT The term Contribution refers to the difference between Sales and Marginal Cost of Sales. P/v ratio helps in the determination of break even point and margin of safety Break even point is a point at which there is no profit or no loss of a particular sales volume.
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