# CMA Study Group

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## Marginal Costing Part 2

• #### 1.  Marginal Costing Part 2

Posted 5 days ago
Hi, Can anyone please explain this sol. in simplified way

• #### 2.  RE: Marginal Costing Part 2

Posted 4 days ago

You can solve this problem in two types

1. By Just calculating the rent at different revenues and eliminating the distractors
2. Using concept :- in this problem you have to think the whole decision making things in respect of 'mall a' as it has only fixed rent and other 2 have renting system that their values could vary. So in this case firstly think when does the 'mall c' rent hits 300,000 and when will it exceed 300,000 the answer is when revenue hits 5,000,000 (150,000÷3%). So in that case 'mall c' rent would be (5,000,000×3%) +150,000 =300,000. With this we can say compared to 'mall a', 'mall c' rent will always be cheaper till the revenue hits 5,000,000 after that level mall a rent will be cheaper. Next , think when 'mall b' would hit the rent of 300,000 or when it will exceed the rent of 300,000 . The answer is also simple (300,000÷4% ) = 7,500,000. so with this the conclusion can be made that till revenue hit 7,500,000 the 'mall b' would be a cheaper option compared to 'mall a' but when revenue exceeds 7,500,000 'mall a' would be a cheaper option. Lastly think when 'mall b' and 'mall c' rent would be greater compared to each other . So if you see the rent pattern 'mall b' demands 4% of revenue where as 'mall c' demands 3%  of revenue but additional 150,000. So you can think it like owners of 'mall b' are really taking a bet and sacrificing 150,000 for 1% of revenue compared to their competitor 'mall c'. So for 'mall b' this bet would pay off when atleast their additional 1% of revenue is equivalent to 150,000 that means when the sales hit(150,000÷1%) = 15,000,000 . And with that we get a conclusion that till 15,000,000 sales 'mall b' will earn a lesser rent (cheaper) compared to 'mall c' but whenever sales hit more than 15,000,000 'mall c' will start to earn a lesser rent (cheaper) compared to mall b. So finally the secondary conclusions we can make through those primary conclusions are :-

1. Till revenue hits 5,000,000 the priority (in the basis of cheaper rent) should be:- 'mall b' would be the first priority , 'mall c' would be the second priority and 'mall a' would be at third

2. When revenue is greater than 5,000,000 but less than 7,500,000 :- 'mall b' would remain at first , ' 'mall a' would be 2nd priority and at third we will place 'mall c '

3. When revenue is greater than 7,500,000 but less than 15,000,000:- 'mall a' would emerge as first priority , 'mall b' will come down to 2nd priority and 'mall c' would remain as 3rd priority .

4. when revenue exceeds 15,000,000 :- 'mall a' would remain as first priority , 'mall c' will emerge as 2nd priority and 'mall b' would come down to 3rd priority

So the finals conclusion we can reach at is 'mall c ' at any revenue level can't be the first priority (not the most desirable) so 'mall c' wouldn't be advisable to the company at any revenue scale.

Now , the whole 2nd part was for the conception about the topic but we can apply the 1st part to solve it quickly when solving mcqs.

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Avimitra Ghosh
Supervisor
Howrah/Belgachia
India
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