Marginal Costing Ratios Calculator

Marginal Costing Ratios

Marginal costing ratios calculator assists management in making managerial decisions by instantly calculating various important metrics with regard to the cost of the product or service. It shows the additional cost incurred for producing each additional unit. Under this method, the total cost is bifurcated into fixed cost and variable cost. Marginal cost can be defined as a variable part of the total cost.

Formula for Calculating Marginal Costing

To calculate different terms under marginal costing, the following formulas are to be taken into account:

TermsFormula
ContributionTotal Sales – Total Variable Cost
Contribution per Unit(Total Sales – Total Variable Cost) / Number of units sold
PV/Contribution RatioContribution * 100 /Total Sales
BEP UnitsFixed Cost / Contribution per unit
BEP SalesFixed Cost / Contribution Ratio
Margin of SafetyTotal Sales – BEP Sales
Margin of Safety Ratio(Total Sales – BEP Sales) * 100/Total Sales

About the Calculator / Features

This calculator calculates Total Contribution, Contribution per Unit, PV/Contribution Ratio, BEP Units, BEP Sales, and Margin of Safety Ratio by only providing the following details in it:

  • Total Sales
  • Total Variable Cost
  • Fixed Cost
  • Number of Units Sold

Marginal Costing Ratios Calculator

How to Calculate using a Calculator

One has to insert the following data in the calculator above to calculate the result:

Total Sales

This figure can be obtained from the Income & Expenditure Statement of the entity.

Total Variable Cost

The total variable cost of the units sold can be derived from the costing records of the organization.

Fixed Cost

The fixed cost associated with the goods sold can also be obtained from the cost records of the organization.

Number of Units Sold

A number of units sold can be obtained from the sales record of the entity.

Example of Marginal Costing

Company A manufacture and sell 5,000 articles at a price of $20 per article. The variable cost per unit is $8, and the total fixed cost is $40,000. Considering the following data, let`s calculate Contribution, PV Ratio, BEP & Margin of Safety.

Total SalesSP per unit * Number of units sold$20*5,000$100,000
Total Variable CostVC per unit * Number of units sold$8*5,000$40,000
Fixed Cost – –$40,000
ContributionTotal Sales – Total Variable Cost$100,000-$40,000$60,000
PV/Contribution RatioContribution * 100 / Sale$60,000*100/100,00060%
BEP SalesFixed cost / PV Ratio$40,000/60%$66,667
Margin of SafetyTotal Sales – BEP Sales$100,000-$66,667$33,333

Interpretation of Marginal Costing

In the above example, the contribution per unit is $12 (i.e., SP per unit – VC per unit, $20-$8). A change in per unit selling price or variable cost will cause a change in contribution and will eventually cause a change in PV Ratio, BEP, and Margin of Safety.

Above all, in the current example explained above, it is clear that the business has reasonable safety of 33%, i.e., if the sales fall by 33%, the business will still keep sustaining.

Cautions

Marginal costing does not provide any standard for the evaluation of performance. A system of budgetary control and standard costing provides more effective control than that obtained by marginal costing.



Sanjay Borad

Office BSBA

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