2. Marginal Costing By
Maura Fehily

3. Time Management
80 mark question minutes Start with theory part of question Worth up to 12 marks = 3%

4. Marginal Costing Total PU (Price per Unit) Sales - Variable Cost
= Contribution
- Fixed Cost
= Net Profit

5. Always highlight number of units
In Variable Costs

6. BEP Breakeven Point: Sales = Cost
Profit = 0

7. BEP = Fixed Costs Contribution per unit
Formula
BEP = Fixed Costs Contribution per unit
No. of Units = Fixed Costs + Target Profit
Contribution per unit

8. € € Sales (90,000 units) 1,170,000 Materials 390,000 Direct labour 236,000 Factory overheads 82,000 Selling expenses 105,000 Administration exp. 130,000 Materials, direct labour 40% factory o/h variable. Apart from sales comm. of 5% on sales all other expenses are fixed

9. Step 1 Sales Commission
Sales (90,000 units) €1,170,000 Sales commission of 5% on sales 5% of €1,170,000 = € 58,500 is variable

10. Step 2 Calculate Factory Overheads
Total Factory Overheads Variable 40% of 82,000 = 32,800 Fixed 60% of 82,000 = 49,200

11. Step 3 Calculate Variable Costs
Per Unit Direct Materials 390, Direct Labour 236, Factory Overheads 32, Sales Commission 58, Total Variable 717, V.C. per unit (excl. Commission) = 7.32

12. Step 4 Calculate Fixed Costs
Factory Overheads 49,200 Selling expenses 46,500 Administration expenses 130,000 Total Fixed Expenses 225,700

13. Costs
VC FC D. Mat. 390,000 D. Wages 236,000 F. O/H 32,800 49,200 S. Exp. 58,500 46,500 Adm. 130,000

14. Step 5 Contribution per unit Sales 1,170,000 13.00
Var. Costs ,
Contribution per unit ,
Less Fixed Costs ,700

15. Step 6 Change in Selling Price
Reduce selling price to €11 increased fixed costs by €15,000 and thereby increased the number of units sold to 110,000. New Sales Commission = 5% x €11 = 0.55 V.C. (excl commission) = € 7.32 New commission = 0.55 Total Variable Costs = € 7.87

16. Step 7 Fixed Costs
€ Old Fixed Costs 225,700 + Increase 15,000 Total Fixed Costs 240,700

17. Step 8 New Contribution per unit
per unit € Sales Variable cost 7.87 Contribution per unit 3.13 Total contribution (110,000 x € 3.13) = €344,300 New Fixed Costs = € 240,700

18. Thank you