MARGINAL COSTING ANALYSIS OF

MARUTI UDYOG LTD.

Topic : MARGINAL COSTING

Compiled by:
Reetika Sharma 77
Sangeeta 87
Smriti 97
Sneha 98
A Brief History….
 Maruti Udyog Ltd.- Formed to cater to the problem
of insufficient public transport capability of the
Government.
 The need for an alternative was becoming very
necessary, when the Government of India through
an Act of Parliament formed Maruti Udyog Ltd. in
1981.
 A Joint Venture agreement was signed by the Govt.
of India and Suzuki Motor Company in Oct 1982.
 307showrooms across 189 cities.
History cont…
 Technologically, they have attained a benchmark.
 Their overall sales growth is of 15.8%. Hence,
making it easier for Indians to buy cars.
 In 2001, Maruti Udyog Ltd became one of the first
automobile companies anywhere in the world to get
an ISO 9000:2000certification.
SOME SUCCESS STORIES

 Rapid Expansion of Capacity: From 20,000 units (one

plant) in 1983 to 3,50,000 units (three plants) in 199
 Productivity: Vehicles per employee increased from 15 in
1984-85 to 70 in 1999-200
 Suggestions Scheme & Quality circles: Cost savings of
 Rs. 131.69 Cr. through 52,054 Suggestions in 1999-
2000
 Innovative use of IT for increased efficiency,
 Effectiveness of communication and reduction of costs
MARGINAL COSTING

• The increase or decrease in one unit of output

increases or decreases the total cost from the existing
level to the new level.

• The elements of cost are differentiated between fixed

costs and variable costs.

• Prices are based on marginal cost plus contribution.

Cont……………..

PROFIT/ VOLUME RATIO

It expresses the relationship between contribution &
sales.
BREAK EVEN POINT
 It is the point at which total revenue is equal to total
cost.
MOS
MOS is the excess of actual sale of production volume
over the Break-even point
TABLE 1
PARTICULARS 2008 2007

SALES 18,066.80 14,806.40

VARIABLE COSTS

Material Consumed 13,622 11,063.70

Manufacturing Expenses 670.60 489.80
Personal Expenses 356.20 288.40
Selling Expenses 560.20 274.50
Total 15,249 12,115.7
FIXED COSTS

Administrative Expenses 326.30 274.50

Financial Expenses 59.60 37.60
Depreciation 568.20 271.40
Other write off - -
Total 954.10 583.5
Profit 1730.80 1561.60
BRIEF ANALYSIS……..

• Variable cost has increased from 12115.7 to

15,249, a 25.86% increase
• Fixed cost has increased from 583.5 to
954.10, an increase of 63.5%
• Sales increased from 14,806.40 to 18,066.80,
an increase of 22.02%
• Profit has increased from 1561.60 to 1730.80
an increase of 10.8%
BRIEF ANALYSIS….
• CONTRIBUTION
 For 2008
Contribution = 18066.80 – 15249 = 2817.80
 For 2007
Contribution = 14806.40 – 12115.70 = 2691
 An increase of 4.7% from last year but if we analyze
the figures the contribution is just enough to cover fixed
cost indicating not much profit.
BRIEF ANALYSIS…..
• PROFIT AND VOLUME RATIO (PVR)
 For 2008
PVR = ( 2817 / 18066.80 )*100 = 15.6%
 For 2007
PVR = ( 2691 / 14806.7 )*100 = 18.17%
 A decrease of 14.14% in PVR from last year
2007 as variable cost of the product is more
than the increase in sales which led to a
decrease in PVR
BRIEF ANALYSIS……
• BREAK EVEN POINT (BEP)
 For 2008
BEP Rs. = ( 954.10 / 15.6) = Rs. 6116.02
 For 2007
BEP Rs. = ( 583.5 / 18.17) = Rs. 3211.34
 An increase of 90% from last year, main
reason behind being decrease in PVR which
has led to an increase in BEP indicating that
the company will now have to sell more in
order to cover at least its fixed cost.
BRIEF ANALYSIS……..
 MARGIN OF SAFETY
 For 2008
MOS Rs. = ( 1730.80 / 15.6 ) = 11094.87
 For 2007
MOS Rs. = ( 1561.61 / 18.17) = 8594.4
A 29% increase in MOS from last year - good
sign for the company - maintaining as well as
increasing its MOS even in times of recession
BRIEF ANALYSIS…..
ACTUAL SALES

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