Marginal Costing

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Achintya Singhal (Querist)

30 July 2008 Dear Sir,

This Query relates to Marginal Costing.

There are two Companies with different Profit Volume Ratios.

The Fixed Cost of the Company having a higher Profit Volume Ratio is more.

In Case of higher demand which Company would earn more Profits and why

S.Srinivasaraghavan

S.Srinivasaraghavan (Expert)

30 July 2008 In case of higher demand or higher production and sale?

Achintya Singhal

Achintya Singhal (Querist)

30 July 2008 Thanks Buddy for taking out time for my Question.

I Meant in case of higher Production and Higher Sales.

CA Nallathambi Srinivasan

CA Nallathambi Srinivasan (Expert)

30 July 2008 If the Fixed cost is not changed due to more production or more sales, then the high PV Ratio company will earn more profit.

Bcoz, the profit is totally depends upon the PV ratio and nature of fixed cost in marginal costing.

CA Anand Sarda

CA Anand Sarda (Expert)

30 July 2008 First Find Cost BEP,
Cost BEP is the point where the cost of both the companies are same at same sales point.

Then check the fixed cost.

The company having higher fixed cost will earn more profits during higher demand bcoz the company will have obligation of fixed cost.What ever extra sales made,the contribution of that will be profit.

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