Page 272 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 12: Marginal Costing and Profit Planning

TR = TCP + TVC Notes
= (TNP + TFC) + TVC
Total Contribution Profit (TCP)
= TR – TVC
= Net Profit + Fixed Cost

Task Break even sales 1,60,000
Sales for the year 2008 2,00,000

Profit for the year 2008 12,000
Calculate:
1. Profit or loss on a sale value of 3,00,000.
2. During 2009, it is expected that selling price will be reduced by 10%. What should be
the sale if the company desires to earn the same amount of profit as in 2008?

12.6.2 Three Alternatives

The break even point may now be computed in one of three different but interrelated ways. To
illustrate, assume that a factory can produce a maximum of 20,000 units of output per month.
These 20,000 units can be sold at a price of 100 per unit. Variable costs are 20 per unit and the
total fixed costs are 2,00,000.
TFC
1. By direct application of the equation, Q
B
(P-AVC)
2,00,000
= = 2500 units
100 – 20
In order to verify this, we could simply compute the TR and the TC when output equals
2500 units

TR = P × Q
= 100 × 2500
= 250,000

TC = TFC + Q(AVC)
= (200,000) + (2500) ( 20)
= 250,000

2. By modification of the equation above when one is to determine the break even measured
in terms of rupee sales

TFC TFC
Q = =
B AVC
P – AVC …(1)
1 –
P
TFC
or S B P.Q B .P
P – AVC

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