Marginal Costing.docx

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Marginal, Absorption Costing IncomeStatement

& Breakeven Analysis

Submitted To: Mr.Farukh Zaidi

Submitted By:Mustansar Hussain 6478-

FMS/MB /S!4

Muhmmad "eem : 6#$$-

FMS/MB /S!4

%ro&ram: MB !.#

Fa'u(ty o) Mana&ement S'ien's

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*nternationa( *s(ami' +ni,ersity *s(amabad

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Contents Page No

Acknowledgement 04Company Introduction: 05

History 06

Vision: 07

Mission 07

Corporate !"ecti#es 0$

Management Hierarc%y &0

Marginal costing &0

A!sorption costing &'

(reake#en analysis &5

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)e*erences &+

Acknowledgement

We would like to thanks Mr.Farukh Zaidi for being a wonderful teacher with a

difference. Also for his understanding individual students and motivating them to

achieve understanding of course we well thought fairly difficult to say the least.

Thank you sir, we apologize for any mistake in the following project. We have

given it our best shot.

In this project we are learning practically how deals with arginal Absorption

costing systems and how to interpret in the organization. After doing this project

we are able to become understanding the contribution concept, product variable

cost in marginal and full production cost in absorption costing.

We are understand the importance of breakeven analysis because in industry we

should must seeking we are in profit or in loss and how covered it! These all

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information knows with this analysis.

Company Introduction:

Sapphire roup

Sapphire roup is a "akistani conglomerate company largely focused on te#tileindustry. $ased in %ahore, it is a vertically integrated te#tile group, manufacturingcotton yarn, fabric and garments. Its products are e#ported to over &' destinationsaround the globe. The (roup employs more than )*,+++.

In +) , the (roup had an turnover of over - /0++ million with an asset base of over - /'++ million. It has the spinning capacity of &'+,+++ spindles with a

production capacity of *',+++ kg of yarn per month from *1s to ) +1s, 2nitsdyeing and finishing and apparels unit has a capacity of knitting '++ tons of greigefabric, &++ tons of dyed and finished fabric and producing 3&+,+++ pcs of garments per month.

The (roup has also diversified into the power generation and dairy sectors.

apphire 4lectric 5ompany is a &3 W combined cycle plant in uridke.

apphire 6airies "rivate %imited operates a large mechanized dairy farm based on)++ acres near anga, %ahore with a herd size of &+++ and a target of )+,+++milking cows 7&++,+++ liters per day8 by + +.

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!ead o""ice:

9A:2 ain $oulevard, (ulberg II,%ahore,"akistan.Phone#s$: ;< 3 ))) +++ )++Fa%:;< 3 &'9' 090&&'Mail: lahore.office=sapphire.com.pk

(egistered o""ice:

) , 5otton 4#change $uilding,I.I. 5hundrigar >oad,2arachi,"akistan.Phone#s$: ;< ) ))) +++ )++;< ) & 3) +

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The -nited tates produces some of the world s finest wines. The apphire (roupis committed to bringing these wines to the 5hinese market and providing

premium wines in bottle or bulk to the discriminating 5hinese customer. We willaccomplish our goals with hard work, honesty, integrity and a long:termcommitment to apphire (roup s much appreciated 5hinese customers.

)ision:

A leading producer of te#tile products by producing the highest Buality of

products and services to its customers.To strive for e#cellence through commitment, integrity, honesty and team work.

Cighly ethical company and be repeated corporate citizen to continue playing

due role in the social and environmental sectors of the company.

To develop and e#tremely motivated and professional trained work force, witch

would drive growth through innovation and renovation.

Mission:

Dur mission is to be recognized as premier supplier to the markets we serve by providing Buality yarns, fabrics and other te#tile products to satisfy the needs of our customers. Dur mission will be accomplished through e#cellence in customer

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service, sales and manufacturing supported by teamwork of all associates. We willcontinue our tradition of honesty, fairness and integrity in relationship with our customers, associates, shareholders, community and stakeholders.

)alues:

People

( elationship

Integrity

* iversity

&nvironment

Corporate +,-ecti es

). a#imization of wealth of shareholders.

. To increase market share&. To achieve customer satisfaction.

3. aking arrangements towards achieving total Buality standards.

'. To get growth through professional management.

*. To growth through professional up to minimum level.

9. To control the atmosphere by installation of lasted machinery.

0. To continue to improve1 surpass past achievement.

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Management Hierarchy in Sapphire Textile Mlls:

Top Management

Mi le Management

!o"er !evel Management

Chie# $xec%tive'cer

(eneral

Manager

Manager

OfcerAssistantManager

DeputyManager

SeniorOfcer

Supervisor

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Marginal Costing:

The arginal cost of an item is its variable cost. The marginal production cost isan item is the sum of 6irect aterial cost ; direct labor cost ; 6irect 4#penses andvariable production overhead cost. o as the volume of production and salesincreases total variable cost rise proportionately.

arginal costing is the Accounting system in which variable costs are charged tocost units and fi#ed costs of the period are written off in full against the aggregatecontribution.

?ote that variables costs are those which change as output changes: these aretreated under marginal costing as costs of the product. @i#ed costs, in this system,are treated as costs of the period.

/he Contri,ution Concept:

The contribution concept is lies at the heart of marginal costing. Contri,ution 0Sales Price 1 )aria,le Costs /otal Contri,ution0 Contri,ution per unit2 Sales )olume Pro"it0 /otal Contri,ution 1 Fi%ed + erheads

OperatorsForemanHelpers

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Marginal Costing Income Statement

Company Sapphire /e%tile Mills ltd

For the year ended3 4une 5637689

Sales in (upees (S (SSales 7 37;538 839;3;9;35;9

=ess Closing In entory # 635;?3;

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=egal Charges #95389936? $

Fee @ su,scription #5393?78$

Computer &%penses #935??3>79$

Ad ertisement &%penses #8>7.866$Security &%penses #737 83766$

Motor )ehicle &%penses #86356?375>$

*epreciation &%penses #893; 53986$

+ther #8389736 7$

#7 93 ;83 7?$

Contri,ution 53 >393??;=ess Fi%ed Cost #735?9399837 ?$

Pro"it loss 8385?

)aluation o" In entory:

Dpening and closing inventory are valued at marginal 7variable8 cost undermarginal costing.

The "i%ed costs actually incurred are deducted from contribution earned in order to

determine the profit for the period.The closing in entory at under marginal costing is '+,&0

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Absorption costing values inventory at the full production cost a unit of product.Inventory level will therefore be different at the beginning and end of period under marginal and absorption costing.

If inventory level is different then this will have an effect on profits reported in theincome statement in a period. "rofits determined using marginal costing principleswill therefore be different to those using absorption costing principles.

A,sorption Costing Income Statement

Company Sapphire /e%tile Mills ltd

For the year ended3 4une 563 7689

Sales in (upees (S (S

Sales 7 37;538 839;3;9;35;9

Fi%ed o erhead a,sor,ed 735?9358

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Communications &BP #938593;>6$

/ra eling &BP #7;3 > .8 6$

(epair @ Maintenance&BP

#9$

Insurance &%penses #73< 83;;6$

=egal Charges #95389936? $

Fee @ su,scription #5393?78$

Computer &%penses #935??3>79$

Ad ertisement &%penses #8>7.866$

Security &%penses #737 83766$

Motor )ehicle &%penses #86356?375>$

*epreciation &%penses #893; 53986$

+ther #8389736 7$ #7 93 ;83 7?$

Pro"it =oss 836

Dorkings:

Dverhead absorbed 735?9358

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Ereake en Analysis:

An analysis to determine the point at which revenue received eBuals the costsassociated with receiving the revenue. $reak:even analysis calculates what isknown as a margin of safety, the amount that revenues e#ceed the break:even

point. This is the amount that revenues can fall while still staying above the break:even point.

$reakeven Analysis or cost1 volume1profit analysis is the study of theinterrelationship between costs volume and profit at various levels of activity.

Ereak'e en Point & uation Method

$reak:even is the point of zero loss or profit. At break:even point, the revenues of the business are eBual its total costs and its contribution margin eBuals its totalfi#ed costs. $reak:even point can be calculated by eBuation method, contributionmethod or graphical method. The eBuation method is based on the cost:volume:

profit 75E"8 formulaF

p# G v# ; @5 ; "rofit

Where,p is the price per unit,% is the number of units,

is variable cost per unit andFC is total fi#ed cost.

5ontribution1 unit G &,''9,*93,

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0735?9399837 ? >?.6

056356?35;53.65

Ereak e en raph:

9366636663666

5366636663666

8366636663666

6 8636663666 7636663666 5636663666 E.P56356535;5.65

8366636663666

7366636663666

735?939987 .?

5366636663666

9366636663666

WWWWWWWW

W

2,394,44 ,2!"9#

$"%"&O'

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)e#erences:

(se) *otes given +y t e instructor

httpsF11www.google.co.in1 BGsapphireH +te#tileH +millsH +limitedH +annualH +reportH + +)&

httpsF11www.google.co.in1 BGsapphire;te#tile;mills;limited;finacial;data

httpsF11www.google.co.in1 BGsapphire;te#tile;mills;limited;introduction

httpsF11www.google.co.in1 BGsapphire;te#tile;mills;limited;introduction

httpsF11www.google.co.in1 BGsapphire;te#tile;mills;ltd;products

httpsF11www.google.co.in1 nfprG)JBGsapphire;te#tile;mills;ltd;hirerachy