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Marginal Costing
L

Marginal Costing Equation

Sales-VC=FC+Profit

Contribution

Sales - VC

Profit +

Profit Volume Ratio


(ln MarginalCosting,
Profit = Contribution)

(Piofit = EB|T)

FC

Contribution

Sales

Change in Profit

Change in Sales

Change in Contribution
LOO%- VC Ratio

Change in Sales

(PV%+VCTo=tOO%ot Sales)

Break Even Point

Total Revenue

Break Even Point(ln Rupees)

FC

Break Even Point(ln Rupees)

Break Even Point * Selling Price

Break Even Point(Quantity)

FC

Note:

At

BEP,

Margin Of Safety

Total Sales - Break even Sales

Margin Of Safety(ln Rupees)

Profit

Margin Of Safety(Quantity)
Indifference Point / Cost Break Even
Point

Profit

Total Sales = Total Profits

(ln Rupees)

Difference in

(ln Rupees)

Difference

(ln Quantity)
(ln Quantity)

Difference

= Total Cost

PV Ratio

Contribution p.u
Total Contribution

I PV Ratio
/ Contribution

p.u

I Difference
in FC / Difference
in FC / Difference
in FC / Difference

Difference

Total Fixed Cost

FC

in VCR

in

PVR

in VC p.u

in Contribution p.u

Shut Down Point


7

(ln Rupees)

Avoidable
Avoidable

(ln Quantity)
Avoidable FC

Total

Contribution

Profit +

Sales(ln Rupees)

Contribution

Profit

Contribution -

FC

/ PV Ratio
FC / Contribution
FC

- Min Unavoidable

p.u
FC

OTHERS
FC

PV Ratio
FC

* PVR

Contribution

Sales

Finding the Selling Price

Total VC / VCR

Finding the Profit

MOS

Note:

Always MOS + PVR = 100%

* PVR

Notes:

t
2

VC p.u Remains Same (it Changes

if units inrcreased or decreased but not Sale Price)


p.u. Varies but remains fixed in total(FC are the Period Cost hence charged off to p & t A/c in Marginal
Costing)
FC

Point of lndifference
3

a)Below the POI : Choose the product having lesser

FC

b)Above the POI : Choose the product having Higher


4
FC =

FC

BEPyo + MOS% = tOO9/o of Sales


Fixed Cost; VC = Variable Cost; PV Ratio = Profit Volume Ratio

Standard Costing
Cost Variances
+

Material

Labour

J-------------f

t-------------1
Price
Usage

Rate

Overheads

Variable

Efficiency

Fixed

J-=---}
Mix

J----------t
Sub- Gang ldle Time

Sub-Usage

-Efficiency

Budget/
Expenditure

Yield

Efficiency

Expenditure

Volume

Calander Capacity

Efficiency

Material Variances:

1.

Material Cost Variance

Standard Cost

2.

Material Price Variance

Standard Cost ofActual Qty. - Actual Cost


ActualQty. (Standard Price - Actual Price)

3.

Material Usage Variance

Standard Cost - Standard Cost ofActual Qty.


Standard Price (Standard Qty. - ActualQty.)

4.

Material Mix

Variance

=
=

5.

Material Sub-Usage Variance

MaterialYield

Variance

differs)

Actual Cost

ActualQty. (Std. Price of Std. Mix - Std. Price of Actual Mix


(Actual Qty. x Std.Priceof Std.Mix) -StandardCostof Actual Qty.

Std. Price of Std. Mix (Total Std. Qty. - Total Actual Qty.)
Standard Cost - (RctualQty. x Std. Price of Std. Mix)

Std. Price of Yield (ActualYield

(When there is Std. Loss or


l/P : O/P ratio

Standard Yield)

i.e. Std. Cost per unit of O/P

Standard Cost

(Std. Price of Yield

7.

Standard Price of Standard Mix

Total Std. Cost/ Total Std. ety.

8.

Standard Price of Actual Mix

Std. Cost ofActual

Standard yield)

Qty./Total Actual ety.

Labour Variances:
l-. Labour Cost

Variance

Standard Cost

2. Labour

Variance

=
=

Standard Cost of Actual Time - Actual Cost


Actual Hrs. (Standard Rate - Actual Rate)

Rate

3. Labour Efficiency

Variance =

Variance

4'

Labour Gang

5'

Laboursub-Efficiency Variance

6. ldle Time

Variance

7. Standard Rate ofStandard


8. Standard Rate ofActual

Va

riable Overhead

Va

1-' Variable overhead

2.

3.

Actual Cost

Standard Cost - Standard Cost of Actual Time


Standard Rate (standard Hrs. _ Actual Hrs.)

=
=

Actual Hrs. (std. Rate of Std. Gang - Std. Rate of ActualGang)


(Actual Hrs. x Std. Rate ofStd. Gang) - Standard Cost ofActual
Time

=
=

Std. Rate of Std. Gang (TotalStd. Hrs. - TotalActual Hrs.)


Standard Cost - (ectual Hrs. x Std. Rate ofStd. Gang)

=
=

Std. Rate

ldle Time

Standard Rate (Actual Hrs. Worked _ Actual Hrs. paid)

Gang

Total Std. Cost/ Total Std. Gang Hrs.

Std. Cost ofActual Hrs.

standard Variable overheads

Gang

/ Total

Actuat Gang Hrs.

riances:

Variance

ActualVariable o/hs

Actual Variable O/hs

Variable Overhead Budget/ Expenditure Variance

Budgeted Variable Overheads

for actual hrs.


Actual Hrs. (Std. Rate

Actual Rate)

Variable Overhead Efficiency Variance

Std. Variable O/h Rate

[-StO.

L
=

Budgeted Variable

for Budgeted

O/hs

Hrs.

Hrr. forActuat

Output

- nctual

Budgeted O/hs for

Actual Hrs.

Hrs.

Fixed Overhead Va riances:


1. Total Fixed Overhead

Variance

2.

Fixed Overhead Expenditure

3.

Fixed Overhead Volume

Variance

Fixed Overheads Absorbed

BudBeted Overheads

Variance =

4. Capacity Variance

Rate/

5. Efficiency

Variance =

6'

Variance =

Calander

Hr.

f-nctuat

Hrs.

Budgetedjl

Hr./un', I worked Hrs.


L (units) (units) )

Fixed O/hs Absorbed

Std. Fixed O/h Absorption

Actual Fixed Overheads

Actual Overheads

Std. Fixed O/h Absorption

Rate/

Budgeted Fixed O/hs

f-nctual Hrs.

Budgeted

Hrsl

[_Capacity

Capacity

Actual Hrs.)

Std. Absorption Rate (Std. Hrs. Required

Std. Absorption Rate (Budgeted Hrs. in Actual period

Budgeted Hrs.)

Sales Variances

Sales Price

Sales Volume

Sales Mix

Variance

Variance

Variance

Sales Margin

Sales Margin

Sales Margin

Price Variance

Volume Variance

Sales

Margin

Quantity

Sales Margin

Variance

Mix Variance

1.

Sales Price Variance

ActualSales - Standard Sales (forActualQty.)


ActualQty. (Actual Price - Budgeted Price)

2.

Sales Volume Variance

Standard Sales - Budgeted Sales


Budgeted Price (ActualQty. - Budgeted Qty.)

3.

Total Sales Variance

Actual Sales

4.

Sales Margin Variance

Actual Margin

5.

Sales Margin Price Variance

ActualQty. (Actual Margin


Per Unit

6.

Sales Margin Volume

7.

Sales Margin Quantity

8.

9.

Sales Margin Mix

Variance
Variance

Variance

Budgeted Sales

- Budgeted

Margin

Budgeted Margin)
Per Unit

Budgeted Margin (Actual Units


(Profit) Per Unit

Budgeted Units)

Budgeted Margin (TotalActual


per unit
Budgeted Mix

Total Budgeted)

of

Qty.

Total Actual Qty.


f6udgeted Margin

Sold

of
Mix
!|ctual
per unit
I

ety.

- Budgeted fvrargin'l

of

per unit
Budgeted

Mix

Budgeted Margin per unit of Actual Mix

Budgeted Margin for Actual ety./ Total Actual ety.

10. Budgeted Margin per unit of Budgeted Mix

Total Budgeted Margin/Total Budgeted ety.

at
a

Market Size & Market Share Variances


Market Size Variance

Budgeted x [actual Industry Budgeted Industry] Budgeted

Market I Sales Volume - Sales Volume I x Ave. Contb.


(Units)
Share (%)
llunits)
) Margin/ unit
i.e. Our Share in Margin Variance of Entire Market

Market Share

Actual Industry Budgeted


Budgeted -l
Variance = f-Acutal
Market share - Market share x Sales Volume x Avg. Contb.
I
I
(%)
(Units)
Margin/ unit
Share (%)
[_share
)
i.e. Variance of Our Share in Overall Actual Market Margin