Railway Accounts Department Examinations

Showing posts with label Break Even Point. Show all posts
Showing posts with label Break Even Point. Show all posts

Tuesday, March 24, 2020

Marginal Costing for LDCE


Marginal Costing

·         Total cost + Profit  = Sales   
  
·         Total Cost = Variable Cost   +  Fixed Cost  

·         So, Variable Cost + Fixed Cost + Profit  = Sales

·         Sales = Variable Cost + (Fixed Cost + Profit)

·         Contribution = (Fixed Cost + Profit)

·         Sales - Variable Cost = Contribution

·         I.e., S - V = (F + P)
or
·         S - V = C
or
·         C = S - V

·         Contribution = Sales - Variable Cost

·         Contribution = (Fixed Cost + Profit)

·         (Fixed Cost + Profit) = Sales - Variable Cost

·         Profit Volume Ratio (PV Ratio) = Contribution / Sales

·         BEP - Break Even Point = Where No Profit or No loss.

·         BEP - Break Even Point = Fixed Cost / P V Ratio

Problem:

Sales - Rs. 100,  Variable Cost - Rs. 80,  Fixed cost - Rs. 10.   Find the Sales at Break Even Point

Answer:

Contribution = Sales - Variable Cost

C = Rs. 100 - Rs. 80 = Rs. 20

PV Ratio = Contribution / Sales = Rs. 20/ Rs.100  = 0.20

BEP = Fixed Cost / PV Ratio

BEP Sales = Rs.10 /0.20  = Rs. 50

To Prove:

If Sales is Rs. 100,  Variable Cost is Rs. 80

If Sales is Rs. 50, Variable Cost is ?   = 50/100 x 80  = Rs. 40

Contribution = Sales - Variable Cost   Rs. 50 - Rs. 40 = Rs. 10


In Break Even Point, Contribution equals Fixed Cost.  Here too Contribution (Rs. 10) and Fixed Cost (Rs.10) are equal. That means No Profit or No loss at Sales Rs. 50.

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