Unit-4 Marginal Costing

BBA- II Term
Marginal costing
Marginal costing is a technique which is
concerned with the changes in costs and
profits resulting from changes in the volume
of output.
Marginal costing is also known variable
costing.
Marginal costing
The ascertainment of marginal cost, by
differentiating between fixed and variable cost
and of the effect on profit of changes in
volume of output
Assumptions of marginal costing
All elements of cost , product, administration,
selling & distributing can be divided into fixed &
variable component.
Variable cost per unit will be considered fixed.
the selling price per unit remains unchanged at all
levels of activity
fixed cost remain unchanged for entire volume
The volume of production affects the costs
Contribution
difference between sales and
variable cost or marginal cost of
sales

Contribution = sales variable cost

Contribution = fixed cost + profit (-
loss)
Advantage of marginal costing
Helps to management fixation of
selling price,
It assists in determining break-even-
point ,
helps to management in selecting of
product mix
helps taking a decision a new
product in market
Marginal cost equation
Sales variable cost = contribution
Sales = variable cost + contribution
Sales variable cost = fixed cost +/-
profit/loss
S-V = F+/-P
EQUATION
1P/V RATIO = CONTRIBUTION/ SALES OR

SALES VARIABLE COST/ SALES

P/V RATIO = FIXED COST +

PROFIT/SALES
COST VOLUME PROFIT ANALYSIS
Managers need to estimate future
revenue, costs, and profits to help them
plan and monitor operations. CVP
analysis to identity the level of operating
activity needed to avoid losses, achieve
targeted profit and plan future
operations.
Relationship between cost, volume &
Profit.
Break-even analysis
break even analysis refers to the
study of relationship between costs ,
volume & profit at different levels of
sales or production.
Break-even analysis
A technique of determining the level
of operation where total revenue
equal total expenses

The point of no profit no loss

Break-even point
Point of sales volume at which total
revenue is equal to the total cost.
Sales revenue at B.E.A= fixed cost
+variable cost.
B.E.P = fixed cost/ (selling price per
unit variable cost per unit)
= B.E.P = fixed cost/ contribution
per unit
Total sales = Total F.C+ total V.C
S= F+V
= S-V = F or,
1=F/S-V, or,
SX1 = FXS/S-V
Break-even-sales = fixed cost x
sales/ contribution.
When the use of P/V Ratio

B.E.P = FIXED COST/ P/V RATIO,

where P/V ratio =contribution/sales.
Margin of safety
MOS referents the difference between
sales at a given activity and sales at
break even point. the size of MOS
indicates soundness of a business.

MOS=actual sales- B.E.P. Sales

MOS
Break even chart
Project-1 BBA-V SEM
Prepare a project on the annual report of the
company.2009-10

Contents of project:
(a) Brief profile of the company
(b) Board of directors
(c) Directors report
(d) Report of directors on corporate governance.
(e) Management discussion & analysis
(f) Auditors report
(g) Financial statement
Name of the company.
Wipro
Reliance communication.
ICICI bank
HDFC bank
Tata steel
Infosys
SBI
NTPC
TATA Motors
Reliance mutual fund.
Bharti airtal
BHEL
PARLE
PEPSICO INDIA
Thank you