Practical Questions

Example 1
Fixed Cost - 90000
Sales - 250000
Profit - 40000

Calculate:
1. Variable Cost
2. Contribution

Solution:
1) Variable Cost
Contribution= Fixed Cost + Profit
= 90000 + 40000
= 130000
variable Cost= Sales- Contribution
= 250000 - 130000
= 120000

2) Contribution
Contribution = Sales -Variable Cost
= 250000 - 120000
= 130000

Example 2:
1. Sales Amount
2. Fixed Cost
3. Break Even Point
in Rs.
4. Margin of Safety
Total Variable Cost
= 70000
Contribution
= 100000
Profit
= 40000

Solution:
1) Sales Amount
Sales = Variable cost + contribution
= 100000 + 70000
= 170000

2) Fixed Cost = Contribution - Profit

= 100000 - 40000
= 60000

3) B.E.P. = Fixed Cost * Sales

-------------------------
Sales - Variable Cost

= 60000 * 170000
----------------------
170000 - 70000
= 102000

4) Margin of Safety
M.O.S. = Sales - B.E.P. Sales
= 170000 - 102000
= 68000

Example 3
Calculate the Break Even Point:
Fixed Cost = 90000
Variable Cost = Rs. 2 per unit
Sales price = Rs. 20 per unit
Solution:
Break Even Point = Fixed Cost Fixed Cost
----------------- ( in Unit) or ----------------
Sales - Variable Cost Contribution
= 90000 or 90000
------------ -----------
20 -2 18
= 5000 Units

Break Even Point ( in Rs.)

Fixed Cost* Sales Fixed Cost* Sales
----------------- or ----------------
Sales - Variable Cost Contribution
= 90000*20 or 90000*20
------------ -----------
20 -2 18

Break Even Point ( in Rs.) = Rs. 100000

Example 4
The Following is the statement of cost and sales of K.S. and S.K.
Fixed Cost = 120000
Variable Cost = 150000
Net Sales = 250000

Determine how much sales volume is to be increased in order for the

company to Break Even

Solution:
Sales for Break Even Point = Fixed Cost* Sales
-----------------
Sales - Variable Cost
Therefore sales at B.E.P.= 120000 * 250000
---------------------
250000 - 150000
Break Even Point Sales = Rs. 300000
So the sales required to increased
= 300000 - 250000
= 50000

Example 5:
From the following data calculate the Break Even Point ( in Units and in
Rs.)
Direct material per unit 6
Direct Labour per unit 4
Variable Overheads per unit 2
Fixed Overheads 40000
Selling Price per unit 20

Solution:
Break Even Point = Fixed Cost
-----------------
Sales - Variable Cost
where
variable overheads:
Material 6
Labour 4
Variable Overheads 2
----------------------------------
Total Variable Overheads = Rs. 12

Break Even Point ( in Units) = 40000

-----------
20 - 12
= 5000 Units

Break Even Point ( In Rs. ) = Fixed Cost* Sales

-----------------
Sales - Variable Cost
B.E.P.( in Rs.) = 40000 * 20
-------------
20 - 12
B.E.P.( in Rs.) = Rs. 100000
Example 7:
The following data relates to a manufacturing Units:
Sales 6000 Units @ Rs. 10 each 60000
Less Variable Expenses 48000
-------------
Contribution 12000
Less Fixed Expenses 8000
------------
Profit 4000

1) What Sales are needed to B.E.P.?

2) The Sales required to earn a profit of Rs. 12000

Solution:
Break Even Point ( In Rs. ) = Fixed Cost* Sales
-----------------
Sales - Variable Cost
B.E.P.( in Rs.) = 8000* 60000
-------------
60000-48000
B.E.P.( in Rs.) = 8000* 60000
-------------
12000
B.E.P. Sales = Rs. 40000

2) The sales required to earn a profit of Rs. 12000

Sales = Fixed Cost + Profit

------------------------- * Sales
Sales p.u. - Variable Cost

8000 + 12000
= ----------------- * 60000
60000 - 48000
 20000
= --------- * 60000
12000
Sales = Rs. 100000

Example 8
Following particulars relate to a manufacturing factory for the month of
the March 2015:
Sales Price per unit Rs. 20
Variable Cost per unit Rs. 14
Fixed Cost Rs. 792000

Calculate
1) Break Even Point in Rs.
2) How much units must be sold to own a target income of Rs. 60000
3) What should be the selling price per unit if Break Even Point is to be
bought down to 120000 units

Solution:
1) Break Even Point ( In Rs. ) = Fixed Cost* Sales
-----------------
Sales - Variable Cost
B.E.P.( in Rs.) = 792000* 20
-------------
20 - 14

B.E.P.( in Rs.) = 792000 * 20

-------------
6
B.E.P. Sales = Rs. 264000

2) Sales in Units = Fixed Cost + Desired Profit

-------------------------
Sales - Variable Cost

792000 + 60000
 = -----------------
20 -14

852000
= ---------
6
Sales in Units = 142000 Units

3) Selling Price per unit to bring B.E.P. to 120000 Units

Contribution = Fixed Cost / Require B.E.P.

792000
= ................ = 6.60
120000

Selling price per unit = 14 + 6.60

= 20.60

Example 9:
The following data is related to a Raj Manufacturing Company:
Fixed Cost - Rs. 150000
Variable Cost - 50% of Sales

Calculate : 1) P/V Ratio

2) B.E.P.
3) Profit at an estimated sales of Rs. 400000
4) Sales Required to earn a profit of Rs. 16000

Solution:

1) P/V Ratio = 1 - Variable Cost Ratio

= 1 - 50%
= 50%
2) B.E.P. = Fixed Cost 150000
--------------- = ------------- = Rs. 300000
P/ V Ratio 50%

3) Profit at an estimated sales of Rs. 400000

Sales * P/V Ratio = Fixed Cost + Profit

400000 * 50% = 150000 + Profit

200000 = 150000 + Profit

Profit = 200000 - 150000

Profit = 50000

4) Sales Required to earn a profit of Rs. 16000

Sales * P/V Ratio = Fixed Cost + Profit

Sales * 50/100 = 150000 + 16000

Sales * 50/100 = 166000

Sales = 166000 * 100

----------
50
Sales = 332000

Example 10
Information regarding K.K. Ltd. are available as follows:

Sales 60000
Less Variable Cost 45000
Contribution 15000
Less Fixed Cost 9000
Profit 6000
Calculate:
1) P/V Ratio
2) Profit on sales of Rs. 90000
3) Sales to earn a profit of Rs. 9000

Solution
1) P/ V Ratio Contribution
= ...........................* 100
Sales

15000
= ....................* 100
60000
= 25%

2) Sales * P/V Ratio = Fixed Cost + Profit

90000 * 25% = 9000 + Profit

22500 = 9000 + Profit

Profit = 22500- 9000

Profit = Rs. 13500

3) Sales * P/V Ratio = Fixed Cost + Profit

Sales * 25/100 = 9000 + 9000

Sales * 25/100 = 18000

Sales = 18000 * 100

----------
25
Sales = 72000
Example 12:

Calculate :

1) The amount of Fixed Cost

2) The number of Units to Break Even Point
3) The number of units to earn a profit of Rs. 80000

The selling price per unit can be assumed of Rs. 10

Sales Units Profit/ Loss

I 14000 20000 ( Loss)
II 22000 20000 ( Profit)

Solution:

1) Fixed Cost
Sales Unit Selling price per unit Total Sale
I 14000 10 140000
II 22000 10 220000

P/v Ratio = Change in Profit

---------------------- * 100
Change in Sales
= 40000 / 80000 * 100
= 50%

Sales * P/V Ratio = Fixed Cost + Profit

220000 * 50/100 = Fixed Cost + 20000

Fixed Cost = 110000 - 20000

Fixed Cost = 90000

2) B.E.P. = Fixed Cost 90000

--------------- = ------------- = Rs. 180000
P/ V Ratio 50%
3) Sales Required to earn a profit of Rs. 80000

Sales * P/V Ratio = Fixed Cost + Profit

Sales * 50/100 = 90000 + 80000

Sales * 50/100 = 170000

Sales = 170000 * 100

----------
50
Sales = 340000

Sales ( in units) = 340000 / 10 p.u.

= 34000 units

Example 11
From the following find out:
1) P/ V Ratio
2) B.E.P Sales
3) Profit for the sales of Rs. 800000
4) Required sales to earn a profit of Rs. 160000
5) Margin of safety for the sales of Rs. 96000

Sales 640000
Less Variable Cost 480000
Contribution 160000
Less Fixed Cost 48000
Profit 112000
Solution:
1) P/ V Ratio Contribution
= ...........................* 100
Sales
 160000
= ....................* 100
64000
= 25%

2) B.E.P. = Fixed Cost 48000

--------------- = ------------- = Rs. 192000
P/ V Ratio 25%

3) Profit at an estimated sales of Rs. 800000

Sales * P/V Ratio = Fixed Cost + Profit

800000 * 25% = 48000 + Profit

200000 = 48000 + Profit

Profit = 200000 - 48000

Profit = 152000

4) Sales Required to earn a profit of Rs.160000

Sales * P/V Ratio = Fixed Cost + Profit

Sales * 25/100 = 48000 + 160000

Sales * 25/100 = 208000

Sales = 208000 * 100

----------
25
Sales = 832000

4) Margin of Safety = Sales - B.E.P

= 960000 - 192000
= 768000
Example 6:
Find out Break Even Points in Units from the following information:
Sales 150000
Fixed Cost 30000
Variable Cost 90000
Units Sold 15000

Solution:
Break Even Point = Fixed Cost
-----------------
Sales - Variable Cost
Break Even Point 30000
= -------------------
150000 - 90000
Break Even Point = .50

Break Even Point ( in Units) = 15000 units * .50 per unit

Break Even Point ( in Units) = 7500 Units

Example 13
Following figures relate to a company manufacturing a varied range of
products:

Year Sales Profit

2014 600000 40000
2015 800000 80000
calculate:
i) P/V ratio
2) Fixed Cost
3) Sales to make a profit of 120000
4) Margin of safety in 2015

Solution
1) P/v Ratio = Change in Profit
---------------------- * 100
Change in Sales
 = 40000 / 200000 * 100
= 20%

2) Sales * P/V Ratio = Fixed Cost + Profit

800000 * 20/100 = Fixed Cost + 80000

160000 = Fixed Cost + 80000

Fixed Cost = 160000 - 80000

Fixed Cost = Rs. 80000

3) Sales Required to earn a profit of Rs. 120000

Sales * P/V Ratio = Fixed Cost + Profit

Sales * 20/100 = 80000 + 120000

Sales * 20/100 = 200000

Sales = 200000 * 100

----------
20
Sales = 1000000

4) Margin of Safety Profit

=............
P/V Ratio

80000
=............* 100
20
Margin of Safety = Rs. 400000
Example 17

From the following particulars calculate:

(1) P/V ratio
(2) Break Even Sales
(3) Margin of safety
(4) Sales required to earn a profit of Rs. 150000
(5) Profit when sales are Rs. 1000000
(6) Margin of safety for a profit of Rs. 200000

Fixed Cost Rs. 150000

Profit Rs. 100000
Sales Rs. 500000

Solution
Contribution = Fixed Cost + Profit = 250000

(1)
P/ V Ratio = Contribution 250000
--------------- = ------------- * 100 = 50%
Sales 500000

(2)

B.E.P. = Fixed Cost 150000

--------------- = ------------- * 100 = Rs. 300000
P/ V Ratio 50

(3) Margin of Safety = Actual Sales - BE Sales

= Rs. 500000 - Rs. 300000
= Rs. 200000

(4) Sales to earn a profit of Rs. 150000

= 150000 + 150000
-------------------------- * 100
50
 = Rs. 600000

(5) Profit when sales are Rs. 1000000

= ( Sales * P/V Ratio) - Fixed Cost
= ( 1000000 * 50/100) - 150000
= 500000 - 150000
= Rs. 350000

(6) Margin of Safety for a profit of Rs. 200000

Profit 250000
= --------------- = ------------- * 100 = Rs. 400000
P/ V Ratio 50