4089958 marginal costing
Post on 09-Apr-2018
223 Views
Preview:
TRANSCRIPT
-
8/8/2019 4089958 Marginal Costing
1/80
m arginal c osting
-
8/8/2019 4089958 Marginal Costing
2/80
Why d o we stu dy M arginal Costing?
-
8/8/2019 4089958 Marginal Costing
3/80
Wh at d o we stu dy in Marginal Costing?
Marginal CostMarginal CostingDir e ct CostingAbsorption CostingContributionProfit Volum e Anal ysisLimiting Factor/k ey factor Br e ak Eve n Anal ysisProfit Volum e Ch art
-
8/8/2019 4089958 Marginal Costing
4/80
Wh at d o we stu dy in Marginal Costing?an d
Why d o we S tu dy MC ?Marginal CostMarginal CostingDir e ct CostingAbsorption CostingContributionProfit Volum e Anal ysisLimiting Factor/k ey factor Br e ak Eve n Anal ysisProfit Volum e Ch art
Manag e m e ntDe cisionMaking
-
8/8/2019 4089958 Marginal Costing
5/80
Marginal Cost
Marginal cost is amount at any given
volume of out put by which aggregatecosts are changed..
if volume of outputis increased or decreased by one unit
-
8/8/2019 4089958 Marginal Costing
6/80
Marginal Cost
Marginal cost is amount at any givenvolume of out put by which aggregatecosts are changed if volume of outputis increased or decreased by one unit
1 Manufactur e 100 ra d ioVariabl e costs Rs150 p uFixed cost Rs 50002 If Manufactur e 101 ra d ios
Marginal Cost 100 x150= 15000
Fixed C ost = 5000total 20000
Marginal cost 150 x101=15150Fixed C ost = 5000
TOTAL 20150
1
2
a dd itional Cost= Rs 150
-
8/8/2019 4089958 Marginal Costing
7/80
Marginal Costing
marginal costing is ascertainment of marginal costing is ascertainment of marginal cost by differentiating betweenmarginal cost by differentiating betweenfixed fixed and and variablevariable costscosts
and of theand of the effect effect of of changes in volumechanges in volume or type of output or type of output
-
8/8/2019 4089958 Marginal Costing
8/80
Marginal Costing
W hat Could be effects of W hat Could be effects of
ChangesChanges
In volumeIn volumeor or Type of output Type of output
-
8/8/2019 4089958 Marginal Costing
9/80
Marginal Costing
W hat Could be effects of W hat Could be effects of
ChangesChanges
In volumeIn volumeor or Type of output Type of output
1 lak h unitsTo
2 lak h units
-
8/8/2019 4089958 Marginal Costing
10/80
Marginal Costing
W hat Could be effects of W hat Could be effects of
ChangesChangesIn volumeIn volumeor or Type of output Type of output
From On eMo de l of
Car toAnot he r
From On e
S ize of pro d uct to
anot he r
-
8/8/2019 4089958 Marginal Costing
11/80
Marginal Costing ---Ch aract e ristics
Fixed & V ariabl eCosts
MC C osts asPro d ucts Costs
Fixed C osts asP e rio d C osts
In ve ntor yValuation
Contribution
Pricing
Marginal Costing&
Profit
-
8/8/2019 4089958 Marginal Costing
12/80
Marginal Costing ---Ch aract e ristics
Se gr e gationFixed & V ariabl e
Costs
Se mi -variabl e costsar e s e gr e gat ed
into fixed &variabl e
-
8/8/2019 4089958 Marginal Costing
13/80
Marginal Costing ---Ch aract e ristics
Marginal Costs as
Pro d ucts Costs
Onl y Variabl e costsar e c h arg edto pro d ucts
-
8/8/2019 4089958 Marginal Costing
14/80
Marginal Costing ---Ch aract e ristics
Fixed C osts asP e rio d C osts
Fixed costs tr e at edP e rio d costs
Ch arg ed to costingP & L Account
-
8/8/2019 4089958 Marginal Costing
15/80
Marginal Costing ---Ch aract e ristics
In ve ntor yValuation
WIP & F goo d s ar eValu ed at
Marginal Cost
-
8/8/2019 4089958 Marginal Costing
16/80
Marginal Costing ---Ch aract e ristics
Contribution
S-V =C
Profitabilit y ju d g ed onContribution ma de
-
8/8/2019 4089958 Marginal Costing
17/80
Marginal Costing ---Ch aract e ristics
Pricing
Pricing is bas ed onContribution &Marginal Costs
-
8/8/2019 4089958 Marginal Costing
18/80
Marginal Costing ---Ch aract e ristics
Marginal Costing&
Profit
A B C Total
S al e s - - - ----
Le ss VC - - - ----
Contribution - - - ----
Fixed C ost ----
Profit -----
-
8/8/2019 4089958 Marginal Costing
19/80
Marginal Costing --- Marginal Costing Profit
S al e s of A
Marginal costOf A
Contribution of A
Total
Contribution of A,B & C
Total FixedCost
S al e s of B
Marginal costOf B
Contribution of B
S al e s of C
Marginal costOf C
Contribution of C
le ss
=
le ss l e ss
= =
le ss
= Profit/loss
-
8/8/2019 4089958 Marginal Costing
20/80
Absorption Costing
Absorption cost is a total cost te c h niqu eAbsorption cost is a total cost te c h niqu eUn de r wh ic h total cost ieUn de r wh ic h total cost ie fix ed & v ariabl efix ed & v ariabl eis c h arg ed to pro d uction.is c h arg ed to pro d uction.
In ve ntor y is also valu ed at total cost. In ve ntor y is also valu ed at total cost.
-
8/8/2019 4089958 Marginal Costing
21/80
Absorption -Marginal Costing --d iff e r e nc e s
Fixed &Variabl e
Costs
Me asur e m e ntOf
Profitabilit yValuationOf stock
-
8/8/2019 4089958 Marginal Costing
22/80
Absorption -Marginal Costing --d iff e r e nc e s
Fixed &Variabl e
Costs
Marginal Costing
Onl y v ariabl e cost
FC c h arg ed to P/L
Absorption Costing
Bot h F & V C ostsAr e c h arg ed
-
8/8/2019 4089958 Marginal Costing
23/80
Absorption -Marginal Costing --d iff e r e nc e s
Valuation
Of stock
WIP & FS
at Marginal
Cost
Total Cost
-
8/8/2019 4089958 Marginal Costing
24/80
Absorption -Marginal Costing --d iff e r e nc e s
Me asur e m e ntOf
Profitabilit y
C=S-V P= S-V-F
-
8/8/2019 4089958 Marginal Costing
25/80
Marginal Costing
Mont h s1 2 3 Total Rs Rs Rs Rs
Absorption Costing
Mont h s1 2 3 Total Rs Rs Rs Rs
(A)S al e s 2,00,000 1,65,000 2, 35,000 6,00,000 2,00,000 1,65,000 2,35,000 6,00,000
Op e ning S tock 84 ,000 84 ,000 1,05,000 2,7 3,000 1,0 8,000 1,0 8,500 1, 35,625 3,52,625Add V C ost 1,20,000 1,20,000 1,20,000 3,60,000 1,20,000 1,20,000 120,000 3,60,000
F C ost _ _ _ _ 3 5,000 35,000 35,000 1,05,000
Total Cost 2,0 4,000 2,0 4,000 2,25,000 6, 33 ,000 2,6 3,000 2,6 3,000 2,90,625 8,17,625
Le ss C S tock 84 ,000 1,05,000 84 ,000 2,7 3,000 1,0 8,000 1, 35,625 1,0 8,500 3,52,625
(B) COG S 1,20,000 99,000 1, 41,000 3,60,000 1,55,000 1,27, 875 1, 82,125 4,65,000
Contribution (A-B)c 80,000 66,000 94,000 2, 40,000 _ _ _ _
( D) F C ost 35000 35,000 35,000 1,05,000 _ _ _ _
Profit (C-D) 45,000 31,000 59,000 1, 35,000
(A-B)45,000 37,125 52, 875 1,35000
Comparati ve C ost S tat e m e nt
-
8/8/2019 4089958 Marginal Costing
26/80
Marginal Costing
Mont h s1 2 3 Total Rs Rs Rs Rs
Absorption Costing
Mont h s1 2 3 Total Rs Rs Rs Rs
(A)S al e s 2,00,000 1,65,000 2, 35,000 6,00,000 2,00,000 1,65,000 2,35,000 6,00,000
Op e ning S tock 84 ,000 84 ,000 1,05,000 2,7 3,000 1,0 8,000 1,0 8,500 1, 35,625 3,52,625Add V C ost 1,20,000 1,20,000 1,20,000 3,60,000 1,20,000 1,20,000 120,000 3,60,000
F C ost _ _ _ _ 3 5,000 35,000 35,000 1,05,000
Total Cost 2,0 4,000 2,0 4,000 2,25,000 6, 33 ,000 2,6 3,000 2,6 3,000 2,90,625 8,17,625
Le ss C S tock 84 ,000 1,05,000 84 ,000 2,7 3,000 1,0 8,000 1, 35,625 1,0 8,500 3,52,625
(B) COG S 1,20,000 99,000 1, 41,000 3,60,000 1,55,000 1,27, 875 1, 82,125 4,65,000
Contribution (A-B)c 80,000 66,000 94,000 2, 40,000 _ _ _ _
( D) F C ost 35000 35,000 35,000 1,05,000 _ _ _ _
Profit (C-D) 45,000 31,000 59,000 1, 35,000
(A-B)45,000 37,125 52, 875 1,35000
Comparati ve C ost S tat e m e nt
-
8/8/2019 4089958 Marginal Costing
27/80
-
8/8/2019 4089958 Marginal Costing
28/80
-
8/8/2019 4089958 Marginal Costing
29/80
Contribution is the d iff e r e nc e b e twee n sal e sAn d the marginal (Variabl e ) cost
Contribution =sal e s -variabl e costC= S-V
Contribution = Fixed C ost+ Profit
C= F+PThe r e for e
S-V = F+P
-
8/8/2019 4089958 Marginal Costing
30/80
Contribution is the d iff e r e nc e b e twee n sal e sAn d the marginal (Variabl e ) cost
S-V =F+P
If an y 3 factors in the e quation ar e kno w nThe 4 th coul d b e foun d out
P= S-V-FP= C-FF=C-PS =F+P+ VV=S-C .
-
8/8/2019 4089958 Marginal Costing
31/80
S al e s =Rs 12,000
V C ost= RS 7,000
F C ost= Rs 4,000
C=S-V=12,000 -7000= 5000
P= C-F
=5,000 -4000
=Rs 1,000
P ROFIT ?
S =C+V
=5,000+7,000=Rs 12,000
S ALES ?
-
8/8/2019 4089958 Marginal Costing
32/80
S al e s =Rs 12,000
V C ost= RS 7,000
F C ost= Rs 4,000
F=C-P
=5,000 -1,000
=Rs 4,000
F C OS T?
V=S-C
=12,000 -5000=Rs 7,000
V Cost?
-
8/8/2019 4089958 Marginal Costing
33/80
Profit Volum e R atio (P V R atio)(Expr e ss e s the r e lation of Contribution to sal e s)
P/ V Ratio =Contribution = C /S =S-V /SS al e s
C = S X P/ V Ratio
CS = --------
P/ V R atio
S al e s= Rs 10,000
V C ost= Rs 8,000
P/ V Ratio=c/s=S-V /S=10,000 -8000/10,000=20%
-
8/8/2019 4089958 Marginal Costing
34/80
Profit Volum e R atio (P V R atio)
Whe n P VRatio isGive n
C= SX P V Ratio
C= 10000 X20%
=Rs 20,000
-
8/8/2019 4089958 Marginal Costing
35/80
Profit Volum e R atio (P V R atio)
Anot he r Me th o d
Ch ang e in ContributionP/ V Ratio = ---------------------------------
Ch ang e in S al e s
Ch ang e in profit= -----------------------
Ch ang e in S al e s
1600 -1000=------------------- x 10022000 -20000
600= ----------- x100= 30%
2,0000
Ye ar sal e s n e t profit
2005 20,000 1000
2006 22,000 1600
-
8/8/2019 4089958 Marginal Costing
36/80
Wh at Coul d b e the U s e s of P V R atio?
Br e ak Eve n Point
Profit at Gi ve n S al e s
Vol r e quir ed to e arn gi ve n Profit
-
8/8/2019 4089958 Marginal Costing
37/80
H o w Impro ve m e nt in P V R atio Coul d b e Ac h ieved ?
Incr e asing Se lling Pric e
Red ucing Variabl e C ost
Ch anging S al e s Mix
-
8/8/2019 4089958 Marginal Costing
38/80
Limiting Or Key F actor
a factor in s h ort suppl y
-
8/8/2019 4089958 Marginal Costing
39/80
Limiting Or Key F actor
a factor in the acti viti e s of an un de rtakingwh ic h at a point of tim e or o ve r a p e rio d
will limit the volum e of out put
-
8/8/2019 4089958 Marginal Costing
40/80
Limiting Or Key F actor
Wh at Coul d b e the Limiting Factors ?
Labour Mat e rialsPo we r
S al e sCapacit yMac h in e s .
-
8/8/2019 4089958 Marginal Costing
41/80
Cost - Volum e- Profit Anal ysis
-
8/8/2019 4089958 Marginal Costing
42/80
-
8/8/2019 4089958 Marginal Costing
43/80
Cost - Volum e- Profit Anal ysis
Br e ak Eve n Anal ysis
Profit Volum e Ch art
-
8/8/2019 4089958 Marginal Costing
44/80
Cost - Volum e- Profit Anal ysis
Br e ak Eve n Anal ysis
A point of no profit no loss
A point whe r e r eve nu e e quals cost
-
8/8/2019 4089958 Marginal Costing
45/80
Wh at ar e BEP ---assumptions
All costs ar e fix ed or variabl eVC r e mains ConstantTotal FC r e mains ConstantSe lling Pric e d ont c h ang e W ith Volum e
Sy nc h ronisation of Pro d & S al e sNo Ch ang e in Pro d ucti vity p e r w ork e rs
-
8/8/2019 4089958 Marginal Costing
46/80
Cost - Volum e- Profit Anal ysis
Br e ak Eve n Anal ysis
Me th o d s
Alg e braic Me th o d
Grap h ic Me th o d
-
8/8/2019 4089958 Marginal Costing
47/80
Cost - Volum e- Profit Anal ysis
ALG EBRAICMETH ODFixed C ost
BEP (Units) = --------------- = FContribution P U S-V
Fixed C ost BEP (Rs ) = ----------------- x S al e s
Contribution
Fixed C ostBEP (Rs) = ------------------P/ V R atio
-
8/8/2019 4089958 Marginal Costing
48/80
Cost - Volum e- Profit Anal ysis
ALG EBRAICMETH ODFixed C ost
BEP (Units) = --------------- = FContribution P U S-V
Fixed C ost BEP (Rs ) = ----------------- x S al e s
Contribution
Fixed C ostBEP (Rs) = ------------------P/ V R atio
F C ost= Rs 12000
S Pric e =Rs12 puV C ost =Rs 9 pu
Fin d BEP
-
8/8/2019 4089958 Marginal Costing
49/80
Cost - Volum e- Profit Anal ysis
Ot he r Us e s
Profit at d iff. S al e s Vol.
S al e s at De sir ed Profit
F C ost= Rs 12000S Pric e =Rs12 puV Cost =Rs 9 pu
Profit whe n sal e s ar e
a) Rs 60,000b) Rs 1,00,000
-
8/8/2019 4089958 Marginal Costing
50/80
-
8/8/2019 4089958 Marginal Costing
51/80
Cost - Volum e- Profit Anal ysis
Ot he r Us e s
S al e s at De sir ed Profit
F C ost +De sir ed ProfitS al e s = -------------------------------
P/ V Ratio
F C ost= Rs 12000S Pric e =Rs12 puV Cost =Rs 9 pu
S al e s if de sir ed profita) Rs 6000b) Rs 15,000
-
8/8/2019 4089958 Marginal Costing
52/80
Cost - Volum e- Profit Anal ysis
S al e s at De sir ed Profit
F C ost +De sir ed ProfitS al e s = -------------------------------
P/ V Ratio
12,000+6000
a) S al e s= ---------------25%
=Rs 72,000
F C ost= Rs 12000S Pric e =Rs12 puV Cost =Rs 9 pu
S al e s if de sir ed profita) Rs 6000b) Rs 15,000
-
8/8/2019 4089958 Marginal Costing
53/80
CVP Anal ysis -qu e stion
P ltd h as e arn ed a profit of Rs 1. 80 lak h on sal e s of
Rs 30 lak h s an d V C ost of Rs 21 lak h s.w ork out
a)B EPb)B EP Whe n V C ost de cr e as e s b y5% c)B EP at pr e s e nt leve l whe n s e lling pric e r ed uc ed b y5%
-
8/8/2019 4089958 Marginal Costing
54/80
-
8/8/2019 4089958 Marginal Costing
55/80
CVP Anal ysis -qu e stion
b) Whe n V C ost incr e as e s b y 5%
New V ariabl e C ost=2100000+5%=22,05,000
P V Ratio 3000000 -22050003000000
=26.5%
BEP =7,20,000/ 26.5%
=Rs 27,16,9 81
-
8/8/2019 4089958 Marginal Costing
56/80
-
8/8/2019 4089958 Marginal Costing
57/80
-
8/8/2019 4089958 Marginal Costing
58/80
Break-Even Analysis
Costs/Revenue
Output/Sales
Initially a firmwill incur fixedcosts, these donot depend onoutput or sales .
FC
Q1
B k E A l i
-
8/8/2019 4089958 Marginal Costing
59/80
Break-Even Analysis
Costs/Revenue
Output/Sales
Initially a firmwill incur fixedcosts, these donot depend onoutput or sales.
FC
As output isgenerated, thefirm will incur variable costs these varydirectly with theamount produced
VCThe total coststherefore(assumingaccurateforecasts!) is thesum of FC+VC
TC
Total revenue is
determined by the price charged andthe quantity sold again this will bedetermined byexpected forecastsales initially.
TR The lower the
price, the lesssteep the totalrevenue curve.
TR
Q1
The Break-even pointoccurs where totalrevenue equals totalcosts the firm, inthis example wouldhave to sell Q1 togenerate sufficientrevenue to cover its
costs.
-
8/8/2019 4089958 Marginal Costing
60/80
Break-Even Analysis
Costs/Revenue
Output/Sales
FC
VCTCTR
Q1
If the firm choseto set price higher than Rs2 (sayRs3) the TR curvewould be steeper they would nothave to sell asmany units to
break even
TR
Q2
-
8/8/2019 4089958 Marginal Costing
61/80
Break-Even Analysis
Costs/Revenue
Output/Sales
FC
VCTCTR
Q1
If the firm choseto set prices lower it would need tosell more units
before covering itscosts
TR)
Q3
-
8/8/2019 4089958 Marginal Costing
62/80
-
8/8/2019 4089958 Marginal Costing
63/80
High initial FC.
-
8/8/2019 4089958 Marginal Costing
64/80
Costs/Revenue
Output/Sales
FC
VCTR
gInterest on debtrises each year FCrise therefore
FC 1
Losses get
bigger !
B k E A l i
-
8/8/2019 4089958 Marginal Costing
65/80
Break-Even Analysis
Remember :A higher price or lower price does notmean that break even will n eve r bereached!
The BE point depends on the sales
needed to generate revenue to cover costs
-
8/8/2019 4089958 Marginal Costing
66/80
Break-Even Analysis
Importance of Pric e E lasticit y of De man d :
H ig he r pric e s might mean fewer sales to break-
even
Lo we r pric e s might encourage more customersbut higher volume needed before sufficient
revenue generated to break-even
-
8/8/2019 4089958 Marginal Costing
67/80
Break-Even Analysis
Links of BE to pricing strat e gi e s an de lasticit y
Penetration pricing high volume, low price more sales to break even
-
8/8/2019 4089958 Marginal Costing
68/80
Break-Even Analysis
Links of BE to pricing strat e gi e s an de lasticit y
Market Skimming high price low volumes fewer sales to break even
-
8/8/2019 4089958 Marginal Costing
69/80
Break-Even Analysis
Links of BE to pricing strat e gi e s an de lasticit y
Elasticity what is likely to happen to saleswhen prices are increased or decreased?
-
8/8/2019 4089958 Marginal Costing
70/80
Marginal CostingCost Volum e Ch art
-
8/8/2019 4089958 Marginal Costing
71/80
Construction Of P V Ch art
1 s e le ct a scal e on H orizontal axis ---sal e s
2 Se le ct a scal e on Ve rtical axis - FC & Profit
3 Plot FC & Profit
4 Diagonal lin e cross e s sal e s lin e at BEP
-
8/8/2019 4089958 Marginal Costing
72/80
P V Ch art Information
Fixed C ost =Rs 5000S al e s =Rs 20000(pu RS 20)V Cost= Rs 10000(pu Rs10)
Fin d
P V Ratio, BEP, Profit?
-
8/8/2019 4089958 Marginal Costing
73/80
Construction Of P V Ch art
0 5000 10000 15000 20000S al e s Rs
Fixed C ostRs
2000
400050006000
8000
8000
600050004000
2000
ProfitRs
BEP
-
8/8/2019 4089958 Marginal Costing
74/80
Construction Of P V Ch art
0 5000 10000 15000 20000S al e s Rs
Fixed C ostRs
2000
400050006000
8000
8000
600050004000
2000
ProfitRs
BEP
LossAr e a
ProfitAr e a
--------------------------Margin of S af e ty
-
8/8/2019 4089958 Marginal Costing
75/80
Eff e ct Of Ch ang e in Profit - 20% de cr e as e in fixed C ost
New F C ost= 5000 - 20%= Rs 4000
Fixed C ostNew BEP = P V Ratio
= 4000/50%
=Rs 8000New Profit= S-F-V=20000 -4000 -10000=Rs 6000
-
8/8/2019 4089958 Marginal Costing
76/80
Eff e ct of Ch ang e in profit - 20% de cr e as e in FC
0 5000 10000 15000 20000S al e s Rs
Fixed C ostRs
2000
400050006000
8000
ProfitRs
BEP
LossAr e a
ProfitAr e a
80006000
50004000
2000
-
8/8/2019 4089958 Marginal Costing
77/80
Eff e ct Of Ch ang e in Profit - 10% de cr e as e in V Cost
New V C ost= 10000 - 10%= Rs9000New P V R atio=20000 -9000
20000
Fixed C ostNew BEP = P V Ratio
= 5000/55%
=Rs 9090 AppxNew Profit= S-F-V=20000 -5000 -9000=Rs 6000
=55%
-
8/8/2019 4089958 Marginal Costing
78/80
Construction Of P V Ch art
0 5000 10000 15000 20000S al e s Rs
Fixed C ostRs
2000
400050006000
8000
80006000
50004000
2000
ProfitRs
New BEP
LossAr e a
ProfitAr e a
-
8/8/2019 4089958 Marginal Costing
79/80
-
8/8/2019 4089958 Marginal Costing
80/80
top related