Marginal Costing

BY

Prof. V.S Meena

Marginal CostingMeaning of Marginal cost – Marginal cost means that increase of total cost witch happens by increased or decreased by one unit in the production volume.

Example –

Unit Total cost Rs. Marginal cost Rs.

0 500 (Fixed cost) -

1 800 300

2 1100 600

3 1400 900

Marginal costing is a variable cost.

Break even point (no Profit no loss)Cost volume profit (c/s x 100)Marginal of Safety (S-BEP)

Break Even Point -

lefoPNsn fcUnq js[kk fp= ds ek/;e ls fdl lhek rd oLrqvksa dk mRiknu vFkok foØ; djuk gkfuizn gS rFkk fdl fcUnq ds i’pkr ykHk izn gksxkA lkFk gh fdruh oLrqvksa dh fcØh ij fdruk ykHk gkfu jgsxhA ;g ckr lefoPNsn fcUnq ds vkxs & ihNs okyh fLFkfr ls Kkr gks tkrh gSA vr,o ;g js[kk fp= O;kolkf;;ksa ds fy, mi;ksfxrkiw.k gS %&

Example –

Product (in units) - 2000 4000 6000 8000 10000

Fixed Costs (in Rs.) 2000 2000 2000 2000 2000

Variable Costs (50 paise per unit) 1000 2000 3000 4000 5000

Sales Price (Rs. 1 per Unit) 2000 4000 6000 8000 10000

o x

y

8000

6000

4000

2000

Sal

es a

nd c

osts

(R

s.) Marginal of Safety

Total Costs

Sales

Break Even Point

Profit

Variable Cost

10000

Fixed Cost

2000 4000 6000 8000 10000

Output in Units

Break Even Point GraphBreak Even Point : - F x S

S - V=

2000 x 4000

4000 - 2000

BEP = 4000

Break Even Point is a No Profit No Loss

That is : Fixed Cost = 2000 Variable Cost = 2000

Total Cost = 2000+2000 = 4000

Total Sales = 4000

Profit & Loss = 4000 – 4000 = 0

bl izdkj ;fn ge 10000 Units dh fcØh dks vk/kkj ekudj fuEu dh x.kuk djrs gSA fn;k x;k gS & Product in Unit = 10000

Fixed Cost (Rs.) = 2000

Variable Cost = 5000

(50 Paise Pur Units)

Sales = 10000

Kkr djuk gS & (1) BEP =F x S

S - V=

2000 x 10000

10000 - 5000

BEP = 4000

(1) Margin of Safety :-

Total Sales - BEP

10000 - 4000 = 6000

lqj{kk lhek ftruh vf/kd gksxh mruh gh vPNh gSA

(3) Profit Volume Ratio -

Profit Volume Ratio or P/V Ratio og nj gS ftlesa ek=k dh c<+ksRrjh ds lkFk ykHk c<+rk gSA ykHk ek=k vuqikr ] ek=k esa ifjorZu gksus ds Qy Lo:i ykHkksa esa tks ifjorZu gksrk gS mls Kkr djus dh dqath gSAFormula :- P/V Ratio =

S - V

SX 100

10000 - 5000

10000X 100P/V Ratio = = 50 %

;fn ges 10000 :- ykHk dekuk gks rks fcØh fdruh djuh gksxhA

Example

Fixed Cost = 2000Profit Desired = 10000P/V Ratio = 50%

Formula - F + Pd

P/V RatioSales in Rs. =

2000 + 10000

50 %Sales in Rs. = = 24000

10]000 :- bfPNr ykHk dekus ds fy, gesa 24000 :- dh fcØh djuk gksxkA

Advantage of Marginal Costing :-

(1) Easy To understand.

(2) Helpful in Profit Planning.

(3) Helpful in cost control.

(4) Helpful in Decision Making : -

(a) Make or Buy Decision

(b) Capturing the foreign Markets.

(c) Change of Product Mix

(d) Pricing – (I) Sales Price in Normal Condition

(II) Determination of Minimum Price

(III) Determination of Price below the

Total cost.

(IV) Temporary closure of production.

(V) Permanent closure of the factory

THANKS