Marginal costing || Study Notes || CMA Inter

 Marginal Costing

Meaning of Marginal Cost 

It means total variable cost comprising prime cost and variable overheads.

According to the institute of cost and management accountants, London,  Marginal cost is "The amount at any given volume of output by which aggregate costs change if volume of output is increased of decreased by one unit".

Meaning of Marginal Costing

In Marginal Costing, total cost is segregate into variable cost and fixed cost. first we need to calculate contribution. after contribution we calculate profit.

Meaning of Contribution

Contribution is the difference between sale and the variable cost.

Meaning of PV Ratio

It is also known as contribution to sales ratio. It show the relationship between contribution and sale. High PV ratio means higher amount of contribution.

Calculation of Profit under Marginal Costing

           Sales                      XXX

Less : Variable Cost        XXX

           Contribution         XXX

Less : Fixed Cost             XXX

           Profit                     XXX 

Formula of computing Contribution

• Contribution = Sales  -  Variable Cost
• Contribution = Profit +  Fixed Cost
• Contribution = Qty sold x Contribution Per Unit
• Contribution = Sales x Pv Ratio

Formula of computing PV Ratio

• PV Ratio =  Contribution/Sales x 100
• PV Ratio = Contribution per unit/ selling price per U x 100
• PV Ratio  = 100% - VC Ratio
• PV Ratio  =  Change in profit / Change in sales x 100
• PV Ratio  = Fixed Cost / BEP sales x 100
• PV Ratio  = Profit x Margin  of Safety x 100

Formula of computing Break Even Point Sales

• BEP Sales = Fixed Sales / PV Ratio
• BEP Sales = Actual Sales - Margin of safety
• BEP Sales = BEP Sales x SPPU

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