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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

increase or decrease in the volume the cost is increased or decreased by Rs.2

respectively. Thus, Rs.2 will be called as the marginal cost

According to CIMA Terminology Marginal Costing is the ascertainment

of marginal cost and of the effect on profit of changes in volume or type of

output by differentiating between fixed costs and variable costs. In this

technique of costing only variable costs are charged to operations, processes or

products, leaving all indirect costs to be written off against profit in the period

in which they arise.

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.

Marginal costing is different from direct costing. Direct costing is practice of

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

direct costing some fixed costs could be considered to be direct costs in

appropriate circumstances but fixed cost never taken in marginal costing.

According to J. Batty, Marginal costing is "a technique of cost accounting pays

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

the effect of changes in volume or type of output on the company's profit.

Significance of the study

The study is to show the effectiveness of cost volume profit analysis of

manufacturing industries it is significant in that it will.

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

changes of variable cost change.

Assist in making short term range tactical decisions relating sales effort and


Statement of problem

A study of cost volume profit analysis of fastrack company.

Scope of the study

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

understanding cost volume profit analysis

Objective of study

The project is prepared as a partial fulfillment of my studies in
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


The study is based on the secondary data and information available to

various books, magazines and internet websites. The information has been

collected from various sources with proper acknowledgement. I have not

conducted any primary survey nor collected any primary data.

My project work is an descriptive analysis of information available in

various books, magazines and websites.

Limitation of study

The major limitation is financial inadequacy. The waves of the present

economic hardship did effect the researcher to a great deal

The large gap between the academic research that has been taught in the

universities and what already been applied in practice.

The time is not available for sufficient study

The relation between costs of production, volume of production will result in

profit the organization will make. Because the relationship is stable, it is then

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

transactions and business dealings. Profit is an important factor in any business

transaction. The main motive of engaging in any business is to make profit.

There is the necessity, therefore, to understand the exact nature of this

relationship in order to:

[i] Control the Level of Costs and

[ii]Manipulate Volume

These Cost Volume Profit analysis is a study of the inherent relationship

between Cost and Profit at various level of volume of activity.

Nweze, [2004: 212] said that Cost Volume Profit relation is a planning

device that considers the inherent relationship between Cost, Volume of

production and the profit that is made .] It asks such question as: why, how and

what and tries to give solution to them.

Pierre, [1987:254] defined Cost Volume Profit analysis as a technique for

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

level of sales activity either in units or Naira and Profit for the firm may be net

income of operating income.

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.

The contribution income statement has a number of interesting characteristics

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

facilitation of profitability analysis by management of an organization.

Behavior means attitude that is what is likely to happen, so cost behavior

means attitude of cost including pattern that cost behavior follows a particular

pattern which can be predicted. Cost is not synonymous with expenditure. In

government, its services are measured by equating it in Naira. In accounting,

cost cannot be incurred unless there is necessity. Before incurring cost, there

must be a necessity. Cost is meant, resources necessarily expended in pursuant

of a defined objective. The based idea behind cost includes: objectivity,

expenditure of resource and necessity. There are at least three different ways in

which cost behaves viz: Variable, fixed and mixed or semi-variable.

Variable Cost: It is also referred to as direct cost. These are the cost of raw

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

in total accounting to changes in output. Example of Variable Cost includes:

direct labour, material, energy costs, packaging sales commissions, etc.

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.

Example of fixed costs includes; Rent depreciation, fixed salaries, Insurance


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

increment of revenue towards the coverage of Fixed Cost.

Mixed Cost or Semi-Fixed or Semi-Variable Cost refers to cost that are

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
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.

on the short and long-term attitude of a firm under varying macro-economic


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

be incurred again until the expiration of the period or range of activities to

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

continue operations even temporarily in the short-run. Recovery of Variable

Cost is important for short-term cash flow purposes whereas recovery of Fixed

Cost is essential for profitability.

It is important, therefore, for every enterprise to have an idea of its total

Variable Cost. This will enable it change a price not below this figure to ensure

short-term survival.

The concept of Cost Volume Profit analysis is so pervasive in managerial

accounting that it touches on virtually everything that managers do. Because of

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.


Owler and Brown [1984:1] defined Cost accounting as that part of

management accounting which establishes budgets and Standard Costs and

actual Costs of Operations, processes, departments or products and the analysis

of Variance, profitability or social use of funds .

Concept of CVP Analysis

Cost Volume Profit Analysis (or break-even analysis) is a logical

extension of marginal costing. It is based on the same principles of classifying

the operating expenses into fixed and variable. Now-a-days it has become a

powerful instrument in the hands of policy makers to maximize profits.

Earning of maximum profit is the ultimate goal of almost all business

undertakings. The most important factors influencing the earning of profit is the

level of production (i.e. volume of output). Cost-Volume-Profit analysis

examines the relationship of costs and profit to the volume of business to

maximize profits. There may be change in the level of production due to many

reasons, such as competition, introduction of a new product, trade depression or

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

profit on account of the changing levels of production. A number of techniques

can be used as an aid to management in this respect. One such technique is the

cost volume profit analysis.

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

levels of output. The cost volume profit analysis establishes the relationship of

cost, volume and profit.

Essentials of CVP Analysis

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

period under consideration.

The number of units sold is equal to the number of units produced during each

period that is all the unit produced are sold.

Variable cost change in total in direct proportion of activity.

All cost can be divided into fix and variable elements.

Labor productivity, production technology and market condition do not


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

number of all the units sold in each period.

Formulas used in CVP Analysis

P/V Ratio: - The profit/volume ratio is one of the most important ratios for

studying the profitability of operations of a business and establishes the

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.

P/V ratio = contribution x 100

= Sales Variable Cost x 100
Use only in case of two or more years data given
= Change in Profit x 100
Change in Sales
Only at Break-even point
= Fixed Cost x 100
Break-Even point: - A business is said to be break even when its total sales

are equal to its total costs. It is a point of no profits no loss. At this point,

contribution is equal to its fixed cost. A concern which attains breakeven

point at less number of units will definitely be better from another concern

where breakeven point is achieved at more units of production.

Break-Even Sales = Fixed Cost

P/V Ratio
= Actual Sales Margin of safety
= Actual Sales Profit
P/V Ratio

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.

Margin of safety = Actual sales Break-even sales

= Profit
P/V Ratio
= Change in contribution
P/V Ratio
= Actual Contribution Breakeven sales
P/V Ratio
Estimated Profit when sales given

Estimated profit = Estimated sales x P/V ratio Fixed cost

Estimated sales when profit given

Estimated sales = Estimated Profit + Fixed cost

P/V Ratio
= Estimated Profit + Fixed cost
Contribution per unit

Format of Marginal Cost Statement

Particular Per unit Total

Sales xx Xxx

Less:- All Variable cost xx Xxx

Contribution xx Xxx

Less:- Fixed Cost xx Xxx

Profit/Loss xx xxx

Logical Equations Used in Marginal Cost Statement

Sales = Total Cost + Profit
= Variable Cost + Fixed Cost + Profit
= Sales Quantity x Selling Price
= Variable Cost + Contribution
= Contribution
P/V Ratio
= Variable Cost
(1+ P/V Ratio)

Variable Cost = Sales Contribution

= Total Cost Fixed Cost
= Sales Fixed Cost Profit
= Sales (Sales x P/V Ratio)
= Quantity x Variable Cost Per Unit

Contribution = Sales variable cost

= Fixed cost + Profit
= Sales x P/V ratio
= Selling Quantity x Contribution per unit
= Fixed cost loss
Fixed Cost = Total Cost Variable cost
= Contribution Profit
= Sales x P/V ratio Profit
= Break-even Sales x P/V ratio
= Contribution + Loss
Profit = Contribution Fixed cost
= Sales Total cost
= Sales Variable cost Fixed cost
= Sales x P/V ratio Fixed cost
= Margin of safety P/V ratio

Profile of the Company


Name of the Brand: Fastrack

Name of the Parent Company: Titan

Year of Establishment: 1998

Industry Preview

Market Worth : Rs 5,00,000

Growth Rate: 15 % 20%

Market Penetration: 37%

Students constitute the largest segment: 30% of the total sales

Organized Players control 40% the market.

Unorganized Players constitute the rest of the 60% of the market

Supplier Power

Buyer Power

Company Name: Titan

Company Overview

Launched on 1984

A joint venture between Tata Group and Tamil Nadu Industrial Development


Indias largest watch brand with 65% of the organized watch market

Worlds Fifth largest integrated watch manufacturer.

Awarded No:1 Brand in the Consumer Durables category in the Brand

Equity Survey by The Economic Times

Turnover for year 2010-2011: 6520.89 Crore

Brand Fastrack

Launched in 1998 as a sub-brand for watches in the youth segment when

Timex broke off Titan as an independent company

Spun off as an independent brand since 2005 under the flagship of Titan

Contributes the largest share of profit to titan i.e 30-40%

Has evolved into a fashion accessory brand with entry into product segments

like sunglasses, bags, belts etc.

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

developed a highly successful commercial and televised event programme for

the National Governing Body, headlined by a new White Knight Title Sponsor,

Insurance company CGU, now known as Aviva.

The business grew strongly from then until August 2006 when that

growth was bolstered by the acquisition of sports marketing consultancy,

Lighthouse Communications. A roster of world class clients and an additional

25 people helped further build the breadth and depth of the Fast Track offering

and together we moved into new headquarters at One Brewers Green in

Victoria. The new company, now 80 strong, had emerged as one of the leading

sports marketing agencies in the UK.

In March 2007, marketing services group, Chime Communications PLC

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

part of Chimes Sports Marketing Division.

Since then Fast Track has continued to evolve its offer and has built

International capability; in addition to our UK Headquarters we now have

established offices in Spain, Abu Dhabi, Hong Kong and New Zealand with

further expansion expected in 2011. Fast Tracks International reach was further

complimented recently through Chimes acquisition of sport marketing group,

Essentially which has market presence in Japan, Australia, South Africa, New

Zealand and India.

Head Office

234/236, Arcot road,


Chennai - 600 024.

Tamilnadu, India

Telephone: 24732020 / 28889999 / 60006000






Motorcycle Helmets

Profit & Loss A/c for the year ended 31st March 2016

Particular Amount
Sales Turnover 4399.11
Excise Duty 49.72
Net Sales 4349.39
Other Income 86.89
Stock Adjustment -25.83
Total Income 4410.45
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

Operating Profit 754.42

PBDIT 841.31
Interest 18.4
PBDT 822.91
Depreciation 73.24
Other written off 0
Profit before tax 749.67
Extra-ordinary items -1.09

PBT (post extra-ord item) 748.58
Tax 157.66
Reported net profit 590.98

Total Value addition 1267.34

Preference dividend 0
Equity dividend 261.44
Corporate dividend tax 43.56

Shares in issue 17429.35

Earning per share 3.39
Equity dividend (%) 150
Book Value (Rs.) 9.15

Marginal Cost Statement

Particular Amount Amount

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

CVP Ratios

P/V Ratio = Contribution x 100

= 1749.55 x 100
= 39.77 %

Break-even point = Fixed Cost

P/V ratio
= 1011.22
= 2542.67

Margin of Safety = Profit

P/V ratio
= 738.33

= 1856.50

Estimated Profit when sales is Rs. 5278.93

= Estimated Sales x P/V ratio Fixed Cost
= 5278.93 x 39.77% - 1011.22
= 2099.43 1011.22
= 1088.21

Estimated Sales when profit is Rs. 885.10

= Fixed Cost + Estimated Profit
P/V ratio
= 1011.22 + 885.10
= 1896.32
= 4768.22

SWOT Analysis: Fastrack


* Good Distribution Network - over 100 Fast track stores across 50 towns

with Titan Service Centres across India

* High youth connect - Positioning as a youth stylish brand

* Fast changing designs to keep up with latest trends

* One of the most trusted brands in India

* Excellent advertising and brand visibility connecting with the youth

* Has a diverse portfolio of watches, sunglasses, bags, wallets etc


* Products have a short life due to changing trends - Adds to the cost of


* Limited global reach despite being a popular brand


* Fast growing youth segment presents growth opportunities

* Global penetration would help brand grow and target youth worldwide

* Tie-ups with fashion houses and special schemes for youth


* Youth segment is price sensitive

* Entry of foreign players has led to tough competition

* With lots of options available, brand switching is quite high


Titan the market leader in the Wrist Watch market in India

Fastrack one of its most successful and profitable brand
Even after the entry of other players, Fastrack is its segment remain

largely ontreatend and expansion of its product line shall ensure that it

remains a strong player in coming decades.

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

above mentioned areas to know actually how cost should be controlled to

maximize profit and how the variance in budgeted and actual production

affected cost and profit.

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

presentation as a basic control and other vital decisions should be emphasized.

All manufacturing firms have to determine whether there industries maximizing

profit or freezing out of the market by using above mentioned methods or

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.