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4.1. Prepare Marginal cost statement from the following particulars

Amount
Particulars
(Rs.)
Variable Cost:-
Direct Material 4,500
Direct Wages 2,500
Factory Overheads 1,500
8,500
Fixed cost:-
Administrative expenses 1,250
Total Cost 9,750
Profit 5,250
Sales 15,000

4.2. Determine the amount of fixed expenses from the following particulars
Sales 2,50,000
Direct Material 80,000
Direct Labour 50,000
Variable Overheads 20,000
Profit 60,000

1. Fill in the blanks for each of the following independent situations

Selling
No. of Variable Contribution Fixed
Price
Case Units Cost Margin Cost Profit / Loss
p.u.
sold % of sales Rs. Rs.
Rs.
I 15,000 ? 90 ? 30,000 0
II 2,000 160 ? 80,000 ? (-) 2,000
III ? 15 75 ? 25,000 50,000

2. Calculate Break Even Point from the following particulars

Fixed expenses Rs. 1,50,000; Variable cost per unit Rs. 10; Selling price per unit Rs.15

4.3. Calculate Break-even point

Sales 6,00,000
Fixed expenses 1,50,000
Variable costs:-
Direct Material 2,00,00
Direct Labour 1,20,000
Other Variable expenses 80,000

4.4. The following information are given for two companies

Particulars X Ltd., Y Ltd.,

Units produced & sold 17,000 17,000
Revenues Rs. 1,70,000 Rs. 1,70,000
Fixed costs 85,000 34,000
Operating income 51,000 51,000
Variable cost 34,000 85,000
Find out the Break-Even Pont of each company both in units as well as in volume
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3. Given
Fixed cost Rs. 8,000
Break Even sales (in units) 4000
Sales 7000 units
Selling price per unit Rs. 10
Calculate (a) Variable cost (b) Profit

4. The annual profit plan of ABC Ltd., is given in the following table. From the data given in
the table, calculate the break-even point in units
Annual Profit Plan of ABC Ltd.,
Fixed cost Variable cost Total
Particulars
Rs. Rs. Rs.
Budgeted Sales (2,00,000 @ Rs. 21 each) 42,00,000
Budgeted Cost:-
Direct Labour 8,00,000
Direct Material 9,00,000
Factory Overhead 6,00,000 2,00,000
Administrative expenses 5,00,000 1,00,000
Distribution expenses 3,00,000 2,00,000
Total 14,00,000 22,00,000 36,00,000
Budgeted profit 6,00,000
Capacity of production2,50,000 units

4.5. The following information relating to a company is given to you

Sales Rs. 4,00,000
Fixed cost Rs. 1,80,000
Variable cost Rs. 2,50,000
Ascertain how much the value of sales must be increased for the company to break-even

4.6. From the following particulars find out the B.E.P. What will be the selling price per unit if
B.E.P is to be brought down o 9,000 units?
Selling price per unit Rs. 100
Fixed expenses Rs. 2,70,000
Variable cost per unit Rs. 75

5. From the following data, calculate Break-even point expressed in terms of units and also the new
B.E.P if the selling price is reduced by 10%
Fixed expenses:-
Depreciation Rs. 1,00,000
Salaries Rs. 1,00,000
Variable expenses:-
Material Rs. 3 per unit
Labour Rs. 2 per unit
Selling price Rs. 10 per unit

4.7. From the following data, calculate

(1) Numbers of units to be sold to earn a profit of Rs. 1,20,000
(2) Sales to earn a profit of Rs. 1,20,000
Selling price per unit Rs. 40; Variable selling cost per unit Rs. 3; Variable
manufacturing cost per unit Rs. 22; Fixed factory overhead Rs. 1,60,000; Fixed selling cost
Rs. 20,000
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4.8. The statement of cost of a cycle is as following

Fixed
Material Rs. 200 Rs. 75
expenses
Labour Rs. 100 Profit Rs. 125
Variable expenses Rs. 25 Selling price Rs. 525

The numbers of cycles made and sold are 10,000 units

Find out
(i) Break even point (ii) How many cycles must be produced and sold of the selling price is
reduced by Rs. 25 and the same profit is maintained

4.9. A ball pen manufacturer has developed a new ball pen with unique features. His design
development executive has suggested three possible retail prices Viz. Rs. 15 for Super
star; Rs. 10 for Deluxe and Rs. 7.50 for Economy model. His marketing manager opines
that the wholesalers and retailers have to be given at least 30% discount
The estimate fixed cost would be around Rs. 70,000 and variable cost per unit would
be Rs. 3.50
(a) Calculate break-even point for each model of ball pen
(b) How much should the manufacturer sell in order to make a profit of Rs. 21,000?
Work out for each model of ball pen

4.10. From the following information relating to Quick Standards Ltd., you are required to
find out (a) P.V. ratio (b) Break even point (c) Profit (d) Margin of safety
Total Fixed Costs Rs. 4,500
Total Variable cost Rs. 7,500
Total Sales Rs. 15,000
(e) Also calculate the Volume of sales to earn profit of Rs. 6,000

16. A company has earned a profit of Rs. 30,000 during the year 2006. If the marginal cost
and selling price of a product are Rs. 8 and Rs. 10 per unit respectively, find out the margin
of safety.

4.11. You are required to calculate Break Even Volume from the following data
Profit Rs. 5,000 (20% of sales) ; P.V ratio is 50%

4.12. You are given: Margin of safety Rs. 10,000 which represents 40% of sale P.V ratio
50%. Calculate (a) Sales (b) Break even sales (c) Fixed cost (d) Profit

4.13. Find the profit from the following data

Sales Rs. 80,000
Marginal cost Rs. 60,000
Break-even sales Rs. 60,000

6. You are required to calculate (a) P/V ratio (b) margin of safety (c) Sales (d) Variable cost
form the following figures:-
Fixed cost Rs. 12,000; Profit Rs. 1,000; Break-even sales Rs. 60,000

4.14. An analysis of Tiptop Manufacturing Co Ltd., led to the following information

Variable cost
Cost element Fixed cost
(% of sales)
Direct Material 32.8
Direct Labour 28.4
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Factory Overheads 12.6 1,89,900
Distribution Overheads 4.1 58,400
Administrative Overheads 1.1 66,700

Budgeted sales are Rs. 18,50,000. You are required to determine

(i) The break even sales volume
(ii) The profit at the budgeted sales volume
(iii) The profit, if actual sales
(a) Drop by 10% (b) Increase by 5% from budgeted sales

4.15. A company has P/V ratio of 40% by what percentage must sales to be increased to
offset
(a) 10% reduction in selling price (b) 20% reduction in selling price

4.16. Raj Corpn., Ltd., has prepared the following budget estimates for the year 2006 – 07
Sales (in units) 15,000
Fixed expenses Rs. 34,000
Sales Rs. 1,50,000
Variable cost Rs. 6 per unit
You are required to
(i) Find the P/V ratio, break even point and margin of safety.
(ii) Calculate the revised P/V ratio, break even point and margin of safety in each of
the following cases
(a) Decrease of 10% in selling price
(b) Increase of 10% in variable costs
(c) Increase of sales volume by 2,000 units
(d) Increase of Rs. 6,000 in fixed costs

7. The P.V. ratio of a firm dealing in precision instrument is 50% and the margin of
safety is 40%. You are required to work out the B.E.P and the net profit if sales
volume is Rs. 50,00,000

8. From the following data, calculate

(i) P/V ratio
(ii) Profit when sales are Rs. 20,000
(iii) New break-even point if selling price is reduced by 20%
Fixed expenses Rs. 4,000
Break-even sales Rs. 10,000

4.17. Break even sales Rs. 1,60,000

Sales for the year 2006 Rs. 2,00,000
Profit for the year 2006 Rs. 12,000
Calculate: (a) Profit or Loss on a sale value of Rs. 3,00,000
(b) During 2007 it is expected that selling price will be reduced by 10%.
What should be the sales if the company desires to earn the same amount of profit as in
2006.

4.18. Assuming that the cost structure and selling prices remain the same in periods I and II
find
i) P/V ratio
ii) B.E. sales
iii) Profit when sales are Rs. 1,00,000
iv) Sales required to earn a profit of Rs. 20,000
v) Margin of safety in IInd period
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Sales Profit
Period
(Rs.) (Rs.)
I 1,20,000 9,000
II 1,40,000 13,000

9. SV Ltd., a multi product company furnishes you the following data relating to the year
2006

First Half of the Second Half of

year (Rs.) the year (Rs.)
Sales 45,000 50,000
Total cost 40,000 43,000
Assuming that there is no change in prices and variable costs and that the fixed
expenses are incurred equally in the two half year periods calculate for the year 2006
(i) The profit volume ratio
(ii) Fixed expenses
(iii) Break-even sales
(iv) Percentage of margin of safety

4.19. S Ltd., furnishes you the following information relating to the half year ended 30 th June
‘06

Fixed Expenses Rs. 45,000

Sales value Rs. 1,50,000
Profit Rs. 30,000
During the second half of the year, the company has projected loss of Rs. 10,000
Calculate
(i) The break-even point and margin of safety for six months ending 30 th June ‘06
(ii) Expected sales volume for second half of the year assuming that the P/V ratio and fixed
expenses remain constant in the second half year also.
(iii) The break-even point and margin of safety for the whole year 2006

4.20. From the following data, you are required to calculate the break-even point and net sales value
at this point
Particulars Rs.
Selling price per unit 25
Direct material cost per unit 8
Direct labour cost per unit 5
Fixed overheads 24,000
Variable overheads @ 60% on direct labour
Trade discounts 4%
If sales are 15% and 20% above the break-even volume, determine the net profits

Decision Making Problems

I Fixation of Selling Price
4.21. P.V. ratio is 60%. Marginal cost is Rs. 50. What is the selling price per unit?

II Make or Buy Decision

4.22. The management of a company finds that while the cost of making a component
part is Rs. 10, the same is available in the market at Rs. 9 with an assurance of continuous
supply
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Give suggestion whether to make or buy this part. Give also your view in case the
supplier reduces the price from Rs. 9 to Rs. 8
The cost information is as follows
Particulars Rs.
Material 3.50
Direct labour 4.00
Other variable expenses 1.00
Fixed expenses 1.50
Total 10.00

III Accepting additional order

4.23. The cost sheet of a product is given below
Direct Material 5.00
Direct Wages 3.00
Factory Overheads:-
Fixed 0.50
Variable 0.50
1.00
Administrative expenses 0.75
Selling or distributive overhead:-
Fixed 0.25
Variable 0.50
0.75
10.50

Selling price per unit is Rs. 12.00

The above figures are for an output of 50,000 units. The capacity for the firm is
65,000 units. A foreign customer is desirous of buying 15,000 units at a price of Rs. 10 per
unit.
Advice the manufacturer whether the order should be accepted. What will be your
advice if the order were from a local merchant?

IV Alternative Methods of Production

4.24. Product X can be produced either by machine A or by machine B; Machine A can produce 100
units of X per hour and Machine B 150 units per hour. Total machine hours available during the year
are 2,500. Taking into account, the following data determine the profitability method of manufacture
Per Unit of X

Machine A Machine B
Rs. Rs.

Marginal Cost 5 6
Selling Price 9 9
Fixed Cost 2 2

V. Alternative Course of Action

4.25. The costs per unit of the three products A, B & C of a company are given below
Products
A B C
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Rs. Rs. Rs.
Direct Material 20 16 18
Direct Labour 12 14 12
Variable Overhead 8 10 6
Fixed Expenses 6 6 4
46 46 40
Profit 18 14 12
Selling Price 64 60 52
No. of units produced 10,000 5,000 8,000

Production arrangements are such that if one product is given up the production of
the others can be raised by 50%. The directors propose that C should be given up because
the contribution from that product is the lowest. Do you agree?

VI Determining Optimum level

4.26. A factory engaged in manufacturing plastic buckets is working at 40% capacity and
produces 10,000 buckets per annum
The present cost break-p for bucket is as under
Particulars Rs.
Material 10
Labour 3
Overheads (60% fixed) 5
The selling price is Rs. 20 per bucket.
If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At
90%, capacity the selling price falls by 5% accompanied by a similar fall in the prices of
material.
You are required to calculate the profit at 50% and 90% capacities and calculate the
break-even point for the same capacity productions.

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