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The term Marginal Cost refers to the amount at any given volume of
output by which the aggregate costs are charged if the volume of output is
changed by one unit. Accordingly, it means that the added or additional cost of
an extra unit of output. Suppose the cost of producing 100 units is Rs.200. If
101 units are manufactured the cost goes up by Rs.2 and becomes Rs.202. If 99
units are manufactured, the cost is reduced by Rs.2 i.e. to Rs.191. With the
products, leaving all indirect costs to be written off against profit in the period
It is clear from the above that only variable costs form part of product
cost in the technique of marginal costing because only variable costs are
changed if output is increased or decreased and fixed cost remains the same.
charging all direct costs to operations, processes or product, leaving all indirect
costs to be written off against profit in the period in which they arise. Thus in
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direct costing some fixed costs could be considered to be direct costs in
special attention to the behavior of costs with changes in the volume of output."
This definition lays emphasis on the ascertainment of marginal costs and also
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Significance of the study
Assist the industries in analyzing its own budget of cost os sales structure.
Help to evaluate the effect of an almost unlimited range of contemplated
prices.
Statement of problem
The scope of the work is covers the fastrack company the population will be
taken from this industries. The study will be based on the knowledge and
Objective of study
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The project is prepared as a partial fulfillment of my studies in B.com
To know different type of costing operating
To ascertaine the effect of variation on the cost of production to profit
To compare the cost of running a vehcle with methodology
Methodology
various books, magazines and internet websites. The information has been
Limitation of study
profit the organization will make. Because the relationship is stable, it is then
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possible for it to be analyzed to enable for decision making. The relationship
between cost and profit must be an inverse one, the higher the cost, the lower
the profit. Profit is the financial benefit of gain which a firm realizes from its
[ii]Manipulate Volume
Nweze, [2004: 212] said that Cost Volume Profit relation is a planning
production and the profit that is made .] It asks such question as: why, how and
evaluating the effect of changes in Cost and Volume on Profit. Cost includes
Variable and Fixed Costs that are expenses of the period. Volume represents the
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level of sales activity either in units or Naira and Profit for the firm may be net
Morse and Roth [1986:288] also stated that in Cost Volume Profit analysis,
the word Cost is restricted to cost that are deducted from revenues to determine
profit. Normally these deductions are called expenses. Consequently all product
Costs are charged against revenues in the period they are incurred.
Ray, [1991:207], also stated that an overview of Cost Volume Profit analysis
begins with the study of cost behavior patterns with the contribution income.
that can be helpful to the manager in trying to judge the impact on profits of
changes in selling price Cost or Volume. One of the characteristics includes the
means attitude of cost including pattern that cost behavior follows a particular
cost cannot be incurred unless there is necessity. Before incurring cost, there
expenditure of resource and necessity. There are at least three different ways in
materials and the direct cost of converting the raw materials. The cost increases
or decreases in a proportionate manner but arbitrarily. These are costs that vary
Fixed Cost: It is Cost that does not vary in total amount as sales volume or the
quantity of output changes over some relevant range of output. For as long as
output changes, that is increase or decrease within these relevant ranges, there
will not be additional fixed cost. For this reason, this cost does not change with
changes in output within the relevant, range rather it shifts within that range.
etc.
Notice in variable cost that zero units of product are manufactured then variable
is zero but fixed cost is better than zero. This implies that some contribution to
the coverage of Fixed Costs occurs as long as the selling price per unit exceeds
the Variable Cost per unit. This helps to explain why some firms will operate a
plant even when sales are temporarily depressed, that is to provide some
neither strictly fixed nor strictly variable. It will be strictly fixed and at a point,
it will be variable and it will be strictly variable and at a point it will be fixed. It
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is difficult to analyze mixed cost but in doing so, add the total fixed cost and
trace that point up to the point where it varies and add to that total variable.
Nweze [2000: 273] also noted that the above presentation of Cost
behavior has substantial effect for Cost Control and recovery and consequently.
conditions.
In terms of sequence, the Fixed Costs must be incurred first since they are
concerned with acquisition of productive capacity once incurred they need not
which they apply. While all cost. including fixed cost must be recovered in the
long-run, emphasis on the recovery of fixed cost in the short-run is not essential
to production.
On the other hand. Variable Costs which must be incurred each time a
new activity is embarked upon must be recovered from that activity, otherwise,
these will ensure serious cash flow problem and it may not be possible to
Cost is important for short-term cash flow purposes whereas recovery of Fixed
Variable Cost. This will enable it change a price not below this figure to ensure
short-term survival.
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The concept of Cost Volume Profit analysis is so pervasive in managerial
its wide range of usefulness. Cost Volume Profit analysis is undoubtedly the
best tool the manager has for discovering the untapped profit potential that may
exist in an organization.
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Cost Volume Profit Analysis (or break-even analysis) is a logical
the operating expenses into fixed and variable. Now-a-days it has become a
undertakings. The most important factors influencing the earning of profit is the
maximize profits. There may be change in the level of production due to many
boom, increased demand for the product, scarce resources, change in the selling
price of the product, etc. In such cases management must study the effect on the
can be used as an aid to management in this respect. One such technique is the
The term cost volume profit analysis is interpreted in the narrower as well
as broader sense. Used in the narrow sense, it is concerned with finding out the
crisis point, (i.e. break-even point) i.e. level of activity when the total cost equal
total sales value. In other words, it helps in locating the level of output which
evenly breaks the costs and revenues. Used in its broader sense, it means that
system of analysis which determines profit, cost and sales value at different
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levels of output. The cost volume profit analysis establishes the relationship of
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The behavior of self-revenue and cost is linear throughout the relevant range
of activity. In other words, we assume that selling price per unit, variable cost
per unit and the total amount of fixed cost will remain constant during the time
The number of units sold is equal to the number of units produced during each
change.
In multi-product firm, the sales mix remains constant i.e the number of
unit of each product sold will be remain constant percentage of the total
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P/V Ratio: - The profit/volume ratio is one of the most important ratios for
relationship between contribution and sales. Higher the P/V ratio, more will
be the profit and lower the P/V ratio, lesser will be the profit.
are equal to its total costs. It is a point of no profits no loss. At this point,
point at less number of units will definitely be better from another concern
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Margin of Safety: - Margin of safety is the difference between the actual
sales and the sales at break-even point. One of the assumptions of marginal
costing is that output will coincide sales, so margin of safety is also the
excess production over the break-even points output. Sales beyond break-
even point are known as margin of safety because it gives some profit, at
break-even point only fixed expenses are recovered. Margin of safety can
also be expressed in percentage.
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Format of Marginal Cost Statement
Contribution xx Xxx
Profit/Loss xx xxx
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Introduction
Industry Preview
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Market Worth : Rs 5,00,000
Supplier Power
Buyer Power
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Company Overview
Launched on 1984
A joint venture between Tata Group and Tamil Nadu Industrial Development
Corporation
Indias largest watch brand with 65% of the organized watch market
Brand Fastrack
Spun off as an independent brand since 2005 under the flagship of Titan
Has evolved into a fashion accessory brand with entry into product segments
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History of the Company
Fast Track was founded in 1998 by ex-Olympians Alan Pascoe, MBE and
Edward Leask with one client, UK Athletics, which is still an important part of
our business today. With a team of just 8 people at the start, Fast Track
the National Governing Body, headlined by a new White Knight Title Sponsor,
The business grew strongly from then until August 2006 when that
25 people helped further build the breadth and depth of the Fast Track offering
Victoria. The new company, now 80 strong, had emerged as one of the leading
added Sports Marketing to its portfolio with the acquisition of Fast Track in a
move that recognised the sectors growing importance. With over 50 PR,
Advertising, Marketing and Research companies in the Group were now a key
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Since then Fast Track has continued to evolve its offer and has built
established offices in Spain, Abu Dhabi, Hong Kong and New Zealand with
further expansion expected in 2011. Fast Tracks International reach was further
Essentially which has market presence in Japan, Australia, South Africa, New
Head Office
Kodambakkam,
Tamilnadu, India
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Current
Watches
Bags
Sunglasses
Belts
Wallets
Motorcycle Helmets
Bicycles
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FASTRACK Co.
Profit & Loss A/c for the year ended 31st March 2016
Particular Amount
Income
Sales Turnover 4399.11
Excise Duty 49.72
Net Sales 4349.39
Other Income 86.89
Stock Adjustment -25.83
Total Income 4410.45
Expenditure
Raw Material 2301.8
Power & Fuel Cost 48.12
Employee Cost 281.24
Other Manufacturing Expenses 5.76
Selling & Admin Expenses 0
Miscellaneous Expenses 932.22
Pre- operative Exp Capitalised 0
Total Expenses 3569.14
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PBT (post extra-ord item) 748.58
Tax 157.66
Reported net profit 590.98
Sales 4399.11
Less:- Variable Cost
Raw Material 2301.80
Power 48.12
Employee Cost 281.24
Interest 18.4 2649.56
Contribution 1749.55
Less:- Fixed Cost
Manufacturing Expenses 5.76
Selling Expenses 0
Miscellaneous Expenses 932.22
Depreciation 73.24 1011.22
Profit 738.33
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CVP Ratios
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= 1856.50
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VALUE ADDITION & BENEFITS
SWOT Analysis: Fastrack
Strength
* Good Distribution Network - over 100 Fast track stores across 50 towns
Weakness
* Products have a short life due to changing trends - Adds to the cost of
production
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opportunity
* Global penetration would help brand grow and target youth worldwide
Threats
Finding
largely ontreatend and expansion of its product line shall ensure that it
Suggestions
This study does not treat various inventory control, budgeting control.
Hence it is important that the readers on the project should study together in the
maximize profit and how the variance in budgeted and actual production
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Conclusion
The basic cost volume profit analysis is a fundamental but exceedingly
useful technique for analyzing the compact changer in revenue cost or volume
on profit.
Documentation of cost data is not and end itself rather its analysis and
techniques to analyze their cost volume profit in the case of Fastrack industry.
It is the most successful and profitable brand in Indian market. Fastrack is a
subsidiary company of Titan, it is the market leader in the wrist Watch Market
in India.
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