Marginal Costing Lecture 2

Marginal Costing lecture 2

Cost Sheet :- It is the vertical representation of 2 formulas:-
      Sales
  - Variable Cost
  ----------------
     Contribution
  - Fixed Cost
------------------
    Profit

Question No – 1

Company currently operate at 60 % of its capacity ( Total capacity – 450000 units / annum)

Admin expenses – Rs 15/unit

Selling and distribution expenses – Rs 20 /unit

Material – Rs 10/unit

Advt – 12 lacs / annum

Wages – Rs 8 / unit

Promotional expenses – rs 15 lacs / annum

Factory expenses – Rs 10 lacs / annum

Company wants to increase its operations to 80 % level which will increase the fixed cost by 5 % and variable cost will decrease by 10 %

Currently sales are Rs 250 /unit keeping same sales price shall company implement the decision .

Solution:-

 

Final Inference :- Since Contribution per unit  and Profit per Unit are increasing , Company should go ahead implement the decision.

Question No – 2

Production – 600000 ( 100 % Per annum )

V cost  

Variable cost	50 %	80 %	100 %
Material	5	10 % less	15 % less
Wages	3	5 % less	10 % less
Factory	4	2 % less	5 % less
Direct expenses	5	Same	Up 5 %
Selling expenses	10	Up 5 %	5 % Less

Fixed cost
Factory	700000	10 % up	10 % up
Admin	800000	same	10 % less
Distribution expenses	1200000	2 % less	5 % less
Sales price	100 per unit	Same	Up 5 %

   Final Inference:- Even though the Contribution per unit and Profit per unit is reducing with respect to increase in Production. the Profit is INR is increasing with  increase in production level. This means that for a short period of time company has brought down their Profit per unit to increase market share.

     PRODUCT MIX:- It is the combination of Producing various products in different volumes to arrive at Profit to the company.
Question 1

Particulars	A	B	C
Sales per unit	125	140	100
Material	35	20	10
Wages/unit	40	30	25

Total Fixed cost of the company – Rs 2 lacs

Suggest Profitable mix

1.    1000 units of A , 2000 units of B , 1500 units of C

2.    1500 units of each product

3.    1000 units of A , 2000 units of B , 3000 units of c

  

Assignment

Material – Rs. 15/ Unit

Wages – Rs.12/Unit

Factory – Rs.5/Unit

Distribution = Rs.10/Unit

Admin expenses = 3 lacs

Selling – 2 lcas

Advt – 5 lacs

Production – 7.2 lacs units / annum

Sales price – Rs 250 per unit

The Above Values are at 40% Production.
Company may operate at 40%, 70% & 90% Production level.
At 90% Production level all Fixed cost will go up by 5%
At 70% Production level all Variable cost will go up by 5%.
Sales Price will remain same at all Production level.

Please calculate and suggest at what production level should company operate.

This assignment to be sent by each individual before coming Sunday on  assignment.sp@gmail.com
Please mentione your name and batch number in the subject of the mail.

All the Best for Continued learning.

Nagarajan V.