Case study in Application of marginal costing

Case 1:
Present the following information to show the management (a) the marginal product
cost and the contribution per unit., (b) the total contribution and profits resulting
from each of the following sales mixture:

Product per
unit
Direct materials A Rs.
10.00
B Rs. 9.00
Direct wages A Rs. 3.00
B Rs. 2.00

Fixed expenses Rs. 800

(Variable expenses are allocated to products as 100% of direct wages)

Sales price A Rs. 20.00

B Rs. 15.00

Sales mixture:
i) 1000 units of product A and 200 units of B
ii) 1500 units of product A abd 1500 units of B
iii) 2000 units of product A and 1000 units of B

Recommend which of the sales mixture should be adopted.

Case 2:
From the following data you are required to present to the management (a) the
marginal cost of the product X nad Y and the contribution per unit., (b) the total
contribution and profits resulting from each of the following sales mixture:
Direct materials :
Product X Rs. 10.50 per unit
Product Y Rs. 8.50 per unit
Direct wages:
Product X Rs. 3.00 per unit
Product Y Rs. 2.00 per unit
Selling Price
Product X Rs. 20.50 per unit
Product Y Rs. 14.50 per unit
Fixed expenses 9Total) Rs. 800
Variable expenses 100% of direct wages per product

Suggested sales mix:

A) 100 units of Product X and 120 units of product Y
B) 150 units of Product X and 150 units of product Y
C) 200 units of Product X and 100 units of product Y
Case 3:
Due to industrial depression a plant is running at present, at 50% of its
capacity. The following details are available.

Direct material Rs. 2.00 per unit

Direct labour Rs. 1.00 per unit
Variable overheads Rs. 3.00 per unit
Fixed cost Rs. 2.00 per unit
Total cost Rs. 8.00

Production per month 20,000 units

Total cost of production Rs. 1,60,000
Sales price Rs. 1,40,000
Loss Rs. 20,000

An exporter offers to buy 5000 units per month at the rate of Rs. 6.50 per
unit and the company hesitates to accept the offer for fear of increasing its
already large operating losses.
Advise whether the company should accept or decline this offer.

Case 4:
The cost per unit of three products X, Y and Z are given below:

Products X Y Z
Direct materials (Rs.) 20 16 18
Direct labour (Rs) 12 14 12
Variable overheads 8 10 6
Fixed expenses 6 6 4
Total 46 46 40
Profit 18 14 12
Selling Price (Rs.) 64 60 52
No. of units produced 10,000 5,000 8,000

Production arrangements are such that if one product is given up the

production of the others can be raised by 50%. The directors propose that
product Z should be given up because the contribution from the product is
lowest. Present suitable analysis of the data indicating whether the proposal
should be accepted.

Case 5:
A machine manufactures 10,000 units of a part at a total cost of Rs. 21 of
which Rs. 18.00 is variable. This part is readily available in the market at Rs.
19 per unit.
If the product is purchased from the market then the machines can
either be utilized in manufacture a component in same quantity contributing
Rs. 2.00 per component or it can be hired out at Rs. 21,000. Recommend
which of the alternative is profitable?
Case 6:
The accounts of a company reveal the following information:
Profit Rs. 14,00,000
Fixed cost Rs. 10,00,000
Selling price per unit Rs. 50
Variable cost per unit Rs. 20
Market sensitivity analysis suggests the following response to price
level change:

Alternative Selling Price Quantity sole

reduced by increased by
A 5% 10%
B 7% 20%
C 10% 25%

Evaluate these alternatives and state which, on profitability consideration,

should adopted for the fore coming year. Assume the cost structure remains
the same.

Case 7:
A radio manufactureing company finds that while it costs Rs. 6.25 each to
make component X273, the same is available in the market at rs. 5.75 each,
with an assurance of continuous supply. The breakdown costs is:
Materials Rs. 2.75 each
Labour Rs. 1.75 each
Other variable costs Re. 0.50 each
Depreciation and other fixed costs Rs. 1.25 each
Total Rs. 6.25 each

a) Should you make or buy

b) What would be you decision if the supplier offered the component
at Rs. 485 each?

Case 8:
From the following details, state which product is more profitable to
manufacture. Assume time as the key factor:
Product A Product B
(per Unit) (per Unit)
Materials Rs. 24 Rs. 14
Labuour (Re 1.00 per hour) Rs. 2 Rs. 3
Variable overheads (Rs 2 per hour) Rs. 4 Rs. 6
Sale price Rs. 100 Rs. 110
Standard time to produce 2 Hours 3 Hours

Case 9:
A confectioner markets three products, all of which require sugar. His
average monthly sales cost of sugar and sugar consumption are as follows:
Product X Product Y Product Z Total
 Sales Revenue Rs. 10,000 Rs. 12,000 Rs. 8,000 Rs.
30,000
Cost of Sales Rs. 6,000 Rs. 8,000 Rs. 5,000 Rs. 19,000
Sugar requirement 500 kg 800 Kg 200 kg
1500 kg

Due to government restrictions, sugar quota has been reduced to 1405 kg

per month. Suggest a suitable sales mix which would give the company
maximum profit under the given circumstances.
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