Marginal Costing McBreen Ltd manufactures a single product - Leaving Cert Accounting - Question 8 - 2020

The variable cost per unit can be calculated by dividing total variable costs by the total units sold:

$$Variable \, Cost \, per \, Unit = \frac{Variable \, Costs}{Units} = \frac{475,000}{50,000} = €9.50 \, per \, unit$$

The contribution per unit is calculated as the selling price minus the variable cost:

$$Contribution \, per \, Unit = Selling \, Price \, per \, Unit - Variable \, Cost \, per \, Unit = 15 - 9.50 = €5.50 \, per \, unit$$

The break-even point (B.E.P.) in units can be calculated by using the formula:

$$B.E.P. = \frac{Fixed \, Costs}{Contribution \, per \, Unit} = \frac{81,000}{5.50} \approx 14,727 \, units$$

To find the sales value at the break-even point:

$$Sales \, Value \, at \, B.E.P. = B.E.P. imes Selling \, Price \, per \, Unit = 14,727 imes 15 \approx €220,909 \, or \, €220,920 \, rounding$$

The margin of safety can be calculated as follows:

1. Margin of Safety in Volume:

$$Margin \, of \, Safety \, (Units) = Budgeted \, Sales - B.E.P. = 50,000 - 14,727 = 35,273 \, units$$

2. Sales Value of Margin of Safety:

$$Sales \, Value \, of \, Margin \, of \, Safety = Margin \, of \, Safety imes Selling \, Price \, per \, Unit = 35,273 imes 15 = €529,095$$

First, we will adjust the figures based on the changes:

• New Selling Price = €15 - €1.50 = €13.50
• New Sales Volume = 50,000 units + 10% = 55,000 units

The marginal costing statement would then look like this:

	€
Sales (55,000 units)	742,500
Variable costs (9.50 * 55,000)	522,500
Contribution	220,000
Fixed cost	81,000
Profit	139,000

A fixed cost is a cost that remains constant regardless of the level of output or the number of products produced. This means that fixed costs do not change with an increase or decrease in production volume.

Examples of fixed costs that McBreen Ltd might incur include:

1. Rent for factory premises - This cost remains the same regardless of how many products are produced.
2. Salaries of permanent staff - These salaries will not vary with the volume of output.