Marginal Cost (Repaired)

7/29/2019 Marginal Cost (Repaired)

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Process Account

Surya Roshni Manufacturing Company is producing bulbs which passing Through Two Process

Following Data during the January

Work in Progress

Opening Stock 6,000 units of bulbs at a cost of Rs 15,000

Closing Stock 7,000 units of bulbs

The degree of completion of both opening and closing WIP was

Previous process Cost 100% Process II Material 80% LAbour and Overheads 60%

During the Month, 47,000 Units of bulbs were Transferred From Process I are a cost of Rs

90,000.Other Costs Incurred for the Process II During the Month were:

Material Rs 43,600 Overheads Rs 21,250

No losses are expected. However, During the month 3,000 units of bulbs were rejected at

inspection and sold as scrap for Rs 1/-

So Process II account and abnormal loss account using first in first out method is as follow:

Solution:


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(A)EQUIVALENT UNITS (EU)

PARTICULARS

QTY.RECONCILATION EQUIVALENT UNITS

INPUT OUTPUT MATERIAL (M) LABOUR (L)OVERHEADS

(OH)

% EU % EU % EU

1OPENING OF WIP (COMPLETED

NOW )6,000 6,000 --- --- 20 1,200 40 2,400

2 FRESH UNITS INTRODUCED 47,000 ---- --- --- --- --- --- ---

3 FRESH UNITS COMPLETED 37,000 100 37,000 100 37,000 100 37,000

4 ABNORMAL LOSS 3,000 100 3,000 100 3,000 100 3,000

5 CLOSING WIP 7,000 100 7,000 80 5,600 60 4,200

TOTAL UNITS (A) 53,000 53,000 47,000 46,800 46,600

(B)COST PER UNITPARTICULARS MATERIAL LABOUR OVERHEADS TOTAL

COST INCURRED DURING THE PROCESS 90,000 43,600 21,250 154,850

TOTAL COST (B) 90,000 43,600 21,250 154,850

EQUIVALENT UNITS (A) 47,000 46,800 46,600

COST PER EU (C = B + A) 1.9149 0.9316 0.4560 3.3025

(C) Cost appropriation

PARTICULARS EU CPEU RS TOTAL

COST OF COMPLETING OPENING WIP

MATERIAL

LABOUR 1200 0.9316 1117.92

OVERHEADS 2400 0.4560 1094.4 2212

COMPLETING FRESH UNIT 37000 3.3025 122193

ABNORMAL LOSS/GAIN 3000 3.3025 9908

COST OF CLOSING WIP

- MATERIAL -I 7000 1.9149 13404.3- LABOUR 5600 0.9316 5216.96- OVERHEADS 4200 0.4560 1915.2 20537


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TOTAL COST (B) APPORTIONED 154850

Cost tranfer

Process

account

II

Particulars units Rs Particulars units Rs

To opening WIP 6000 15000 By abnormal loss 3000 9908

To Transfer from Process I 47000 90000 By Closing WIP 7000 20537

To Material 43600

By Transfer to finished

stock 43000 139405

To Labour 21250To Labour and Overheads

53000 169850 53000 169850

Particulars units Rs Particulars units Rs

To Process II 3000 9908 by Sale of scrap @ 1 3000 3000

By transfer to costing

Profit & loss a/c 6908

_______ ____________ _______ _____3000 9908 3000 9908

PARTICULARS Amount (Rs)

COST OF OPENING WIP B/F (GIVEN) 15000

ADD :- COST OF COMPLETING OPENING WIP (C1) 2212

ADD :- COST OF COMPLETING FRESH UNITS (C2 ) 122193

___________

COST TFD ( to stock/next process) 139405


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Findings:

P.V. Ratio

Break Even Point

Margin Of Safety

Surya Roshni Limitedsupplied following information relating to sales and cost of sales of

manufacturing company for only. 10,000 units.

Particulars Amount (Rs.)

Sales (10,000) 1,20,000

Variable Cost 45,000

Fixed Cost 60,000

From the above information we find out:

P.V. Ratio, Break Even Point Margin Of Safety.

Statement of Marginal Cost for the 10,000 units

Particular Amount (Rs) Per Units

Sales 1,20,000 12


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Less: Variable Cost 45,000 4.5

Contribution 75,000 7.5

Less: Fixed Cost 60,000

Profit 15,000 1.5

Sales 120000 12

Less:Variable cost 45000 4.5

Contribution 75000 7.5

Less: Fixed cost 60000

Profit 15000 1.5

1) P.V Ratio Of Company is as follows:

Sales

Less: Variable Cost

Contribution

Less: Fixed Cost

Profit

0

20000

40000

60000

80000

Column2 Column3

Sales

Less: Variable Cost

Contribution

Less: Fixed Cost

Profit


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P.V. Ratio = Contribution / Sales x 100

Therefore,

P.V. Ratio = 75,000 / 120,000 x 100

P.V. Ratio = 62.5 %

2) Break Even Point Of Company is as follows:

For B.E.P it is necessary to find out B.E.S of the company

So,

B.E.S. = Fixed cost / P.V. Ratio

i.e, B.E.S = 60,000 / 62.5 %

B.E.S = Rs 96,000/- per month

Now B.E.P = B.E.S / Selling price per unit

i.e B.E.P = 96,000 / 12

B.E.P = 8,000 Unit per month

3) Margin of Safety of January is as follows:

Formula for M.O.S is

= SalesB.E.S.

M.O.S = 120,000 96,000

So, M.O.S = Rs 24,000 /-

From the given information we also evaluate the effect of following on P.V. Ratio, B.E.P

and Margin of Safety.


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a) 10% Increase in variable cost.b) 10% Decrease in Variable cost.c) 10% Increase in fixed cost and, 10% Decrease in fixed cost.d) 5% Decrease in selling price.e) 10% Increase in Selling Price and 10% Decrease in units.

According to the information we evaluate the first condition i.e.

If sale and fixed cost is same and 10% Increase in variable cost.So, we find what its effect on P.V. Ratio, B.E.P and M.O.S:

Revised Marginal Cost Statement were:

Particulars Amount (In Rs) Per Unit Price

Sale 1,20,000 12/-

Less: Variable Cost

(10% Increase)

49,500 4.95/-

Contribution 70500 7.05

Fixed Cost 60000

Profit 10500 1.05

So Revised P.V. Ratio = Contribution / Sales x 100

Therefore, P.V. Ratio = 67200 / 120,000 x 100

i.e. P.V. Ratio = 58.75 %

Now Company Revised B.E.P according to change in variable cost is as follows:

B.E.P = B.E.S / Selling price per unit

So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u


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Therefore, B.E.P = (60000 / 58.75 %) / 12

B.E.P = 8511Units

Now Company Revised M.O.S according to change in variable cost is as follows:

M.O.S = SalesB.E.S

So, M.O.S = Sales - (Fixed Cost / P.V. Ratio)

M.O.S =120,000 - (60000 / 58.75% )

i.e. M.O.S = 120000102128

B.E.P = Rs.17872/-According to the information we evaluate our Second condition i.e.

If sale and fixed cost is same and 10% Decrease in variable cost.Particulars Amount (In Rs) Per Unit Price

Sale 1,20,000 12/-

Less: Variable Cost

(10% decrease)

40,500 4.05


Fixed Cost 60000

Profit 19,500 1.95

So Revised P.V. Ratio = Contribution / Sales x 100

Therefore, P.V. Ratio = 79,500 / 120,000 x 100

i.e. P.V. Ratio = 66.25 %

Now Company Revised B.E.P according to change in variable cost is as follows:

B.E.P = B.E.S / Selling price per unit


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So, B.E.P = B.E.S (Fixed Cost / P.V. Ratio) / S.p.u

Therefore, B.E.P = (60000 / 66.25 %) / 12

B.E.P = 7547 UnitsNow Company Revised M.O.S according to change in variable cost is as follows:

M.O.S = SalesB.E.S

So, M.O.S = Sales - (Fixed Cost / P.V. Ratio)

M.O.S =120,000 - (60000 / 66.25 % )

i.e. M.O.S = 12000090566

B.E.P = Rs.29434 /-

According to the information we evaluate the Third condition i.e.

If sale and fixed cost is same and 10% Increase and 10 % Decrease in fixedcost.


Sales 1,20,000 12



Less: Fixed Cost

(10 % Increase)

66,000

Profit 9000 0.9

If Sale, Variable Cost is same than P.V. Ratio remain same

i.e. P.V. Ratio = 62.5 %

Now we evaluate the B.E.P and M.O.S.


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B.E.P = B.E.S. / S.P.u.

B.E.S = Fixed Cost / P.V. Ratio

B.E.P. = (66,000 / 62.5 %) / 12B.E.P. = 105,600 / 12 = 8800 unitsAnd, M.O.S. = SalesB.E.S.

M.O.S = 120,000105600

M.O.S. = Rs. 14,400 /-Particular Amount (Rs) Per Units

Sales 1,20,000 12



Less: Fixed Cost

(10 % Decrease)

54000

Profit 21000 2.1

If Sale, Variable Cost is same than P.V. Ratio remain same

i.e. P.V. Ratio = 62.5 %

Now we evaluate the B.E.P and M.O.S.

B.E.P = B.E.S. / S.P.u.

B.E.S = Fixed Cost / P.V. Ratio

B.E.P. = (54,000 / 62.5 %) / 12B.E.P. = 86,400 / 12 = 7200 unitsAnd, M.O.S. = SalesB.E.S.


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M.O.S = 120,00086,400

M.O.S. = Rs. 33,600 /-According to the information we evaluate the Fourth condition i.e.

If 5% Increase in selling price.Revised Statement of Marginal Cost for the 10,000 units


Sales 1,26,000 12.6




Profit 21,000 2.1



Therefore,

P.V. Ratio = 81,000 / 126,000 x 100

P.V. Ratio = 64.3%



So,


i.e, B.E.S = 60,000 / 64.3 %


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B.E.S = Rs 93,313 /- per month


i.e B.E.P = 93,313 / 12

B.E.P = 7776 Unit per month



= SalesB.E.S.

M.O.S = 126,000

93,313

So, M.O.S = Rs 32,687 /-

According to the information we evaluate the Fourth condition i.e.

10% Increase in Selling Price and 10% Decrease in units.Sales = 10 % Decrease in units i.e. 10,000 10 % = 9,000 /-

S.P.U= 10 % Increase in Price i.e. 12 + 10% = Rs. 14.67 /-

Revised Statement of Marginal Cost for the 9000 units


Sales 1,32,000 14.67

Less: Variable Cost 45,000 5



Profit 27000 3


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Therefore,

P.V. Ratio = 87000 / 132000 x 100

P.V. Ratio = 66%



So,


i.e, B.E.S = 60,000 / 66 %

B.E.S = Rs 90,909/- per month


i.e B.E.P = 90,909 / 14.67

B.E.P = 6197 Unit per month



= SalesB.E.S.

M.O.S = 132,000

90,909

So, M.O.S = Rs 41091 /-


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Marginal Cost (Repaired)

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