1.

Jain manufacturing sold 20,000 units of its products for 100 per unit in the current year, variable
cost per unit is 60 and total fixed cost are 2,00,000. Calculate contribution margin and operating
income
2. Jain,s current manufacturing process is Labour intensive. Rahul, Jain’s production manager has
proposed investing in state- of- the- art manufacturing equipment, which will increase the
annual fixed cost to 7,000,000. The variable cost are expected to decrease to Rs 30 per unit. Jain
expect to maintain the same sales volume and selling price next year. How would acceptance of
Rahul proposal affect your answer to contribution margin and operating income in the first
case? Should the Jain accept Rahul proposal?
3. The Bata owns and operate an outlet in Gurgaon city. You are given the following corporate
budget data for the next year
Revenue 1, 04, 00,000
Fixed cost 21, 00,000
Variable cost 79, 00,000

Variable cost changes based on the number of shoes sold

Compute the budgeted operating income for each of the following deviations from the original
budgeted data

I. An 11% increase in CM , holding revenue constant

4. Reliable motors is a small car dealership. On an average, it sells a car for 2, 70,000, which it
purchase from the manufacturer for 2, 30,000. Each month, reliable motors pays 4, 82,000 in
rent and utilities and 6, 80,000 for sales people’s salaries. In addition to their salaries
salespeople are paid commission of Rs 6,000 for each of the car they sell. Reliable motors also
spends 1, 30,000 each month for local advertisements. Its tax rate is 40%
I. How many cars must Reliable motors sells each moth to break even
II. Reliable motors has a target monthly net income of Rs 5, 10,000. What is its target
monthly operating income? How many cars must be sold each month to reach the target
monthly operating income?
5. Levis jeans Co. Sells blue jeans wholesale to major retailer across the country each pair of jeans
has a selling price of Rs 3000 with Rs 2100 in variable costs of goods sold. The company has fixed
manufacturing cost of Rs 120 lakh and fixed marketing cost of 30 lakh. Sales commission are
paid to wholesale sales rep at 5% of revenue. The company has an effective income tax rate of
25%.
I. How many jeans must the company sell in order to break even
II. How many jeans must the company sell in order to reach:
a) A target operating income of Rs 45 lakh?
b) A net income of Rs 45 lakh
III. How many jeans would company have to sell to earn the net income in part 2b if
(consider each requirement independently)
a) The contribution margin per unit increases by 10%
b) The selling price is increased to Rs 3250
c) The company outsources manufacturing to an overseas company increasing
variables cost per unit by Rs 200 and saving 60% of fixed manufacturing cost

6. Suppose Aggarwal Brothers breakeven point is Revenue of 15, 00,000. Fixed cost are Rs 7,
20,000.
I. Compute contribution margin percentage
II. Compute the selling price if variable cost are Rs 13 per unit
III. Suppose 90,000 units are sold. Compute the margin of safety in units and dollars
IV. What does this tells you about the risk of firm making a loss? What are the most likely
reasons for this risk to increase
7. The lee company has three products line of belts : X, Y, and Z with contribution margins of Rs
15,10 and 5 respectively. The president foresees sales of 1, 00,000 units in the coming period,
consisting of 10,000 units from X, 50,000 units of Y and 40,000 units of Z. The company fixed
costs for the period are 5,10,000
I. What is the company’s break even pointy in units, assuming that the given sales mix in
maintained?
II. If the sales mix is maintained, what is the total contribution when 1, 00,000 units are
sold. What is the operating income?
III. What would be the operating income if 10,000 units of X 40,000 units Y and 50,000 units
of Z were sold? What is the new break-even point in units if these relationship persists
in the next period?
8. Ritu is a distributor of brass picture frames. For the current year, she plans to purchase frames
for Rs 60 each and sell them for 90 each. Ritu’s fixed costs for the current year are expected to
be Rs 4, 80,000. Ritu’s only other cost will be variable cost of Rs 120 per shipment for preparing
the invoice and delivery documents, organizing the delivery, the following up for collection
accounts receivable. The Rs 120 cost will be incurred each time Ritu ships an order of picture
frames, regardless of the number frames in the order
I. A. Suppose Ritu sells 40,000 picture frames in 1,000 shipments in the current year. Calculate
Ritu is current year operating income
 b. Suppose Ritu sells 40,000 picture frames in 800 shipments in the current year. Calculate Ritu
is current year operating income
II.Suppose Ritu anticipates making 500 shipments in the current year. How many picture frames
must Ritu sells to Breakeven in the current year
III. Calculate another breakeven point for the current year different from the one described
in the requirement.
IV. Explain why Ritu has multiple breakeven points.

9. Kid shoe company produces its famous shoe, the Divine Loafer that sells for Rs 700 per pair.
Operating income for 2017 is as follows :
Sales revenue (700 per pair) 35,00,000
Variable cost (300 per pair) 15,00,000
Contribution margin 20,00,000
Fixed cost 10,00,000
Operating income 10,00,000
Kid Shoe Company would like to increase its profitability over the next year by at lease 25%. To do so the
company is considering the following options.
i. Replace a portion of its variable cost labour with an automated matching process. This would result
in a 20% decrease in variable cost per unit but a 15% increase in fixed costs. Sales would remain the
same.
ii. Spend 2,50,000 on a new advertising campaign, which would increase sales by 10%
iii. Increase both selling price by Rs 100 per unit and variable cost by Rs 80 per unit by using a higher
quality leather material in the production of its shoes. The higher-priced shoe would cause demand
to drop by approximately 20%.
iv. Add a second manufacturing facility that would double company,s fixed cost but would increase
sales by 60%.
Evaluate each of these alternatives considered by Company Shoes. Do any of the options meet or
exceed company’s targeted increase in income of 25%? what should company do.

10.Fine printing company currently leases its only copy machine for Rs 12,000 a month. The company is
considering replacing this leasing agreement with a new contract that is entirely commission based.
Under the new agreement, the fine printing would pay a commission for its printing at a rate of Rs
200 for every 500 pages printed. The company currently charges Rs 1.5 per pages and other variable
cost, including hourly labour amounting to 0.5 per page
I. What is the company’s breakeven point under the current leasing agreement? What is it under the
new commission-based agreement?
II. For what range of sales levels will fine prefer (a) the fixed lease agreement (b) the commission
agreement?

11. Bio-Pharm Corporation manufactures pharmaceutical products that are sold through a
network of external sales agents. The agents are paid a commission of 20% of revenues. Bio-
Pharm is considering replacing the sales agents with its own salespeople, who would be paid a
commission of 13% of revenues and total salaries of $2,240,000. The income statement for the
year ending December 31, 2013, under the two scenarios is shown here.
 Bio Pharm Corporation
Income statement
For the year Ended December 31,2013
Using sales Agents Using Own Sales Force
Revenue 32000000 32000000
Cost of goods sold
Variable cost 12160000 12160000
Fixed cost 3750000 15910000 3750000 151910000
Gross Margin 16090000 16090000
Marketing costs
Commissions 6400000 4160000
Fixed cost 3660000 10060000 5900000 10060000
Operating Income 6030000 6030000

1. Calculate Bio-Pharm’s 2013 contribution margin percentage, breakeven revenues, and degree
of operating leverage under the two scenarios.
2. Describe the advantages and disadvantages of each type of sales alternative.
3. In 2014, Bio-Pharm uses its own salespeople, who demand a 16% commission. If all other
cost-behavior patterns are unchanged, how much revenue must the salespeople generate in
order to earn the same operating income as in 2013?