NUMERICALS ON CVP ANALYSIS

Q1. A factory is manufacturing printing machines has the capacity to produce 600 machines per annum.
The marginal cost of each machine is Rs.300 and each machine is sold for Rs.375. Fixed costs are
Rs.30,000 p.a. Calculate the break-even point for output and sales. (Try yourself) [ Ans: BEP (output) =
400 machines and BEP (in Sales) = Rs 1,50,000]

Q2. From the following information calculate the break-even point and the turnover required to earn a
profit of Rs.60,000.

Fixed Overheads Rs.42,000

Variable Cost Rs.4 p.u.
Selling Price Rs.10 p.u.

If the company is earning a profit of Rs.60,000 express the Margin of safety available to it.
Solution:
Break Even Point = Fixed Cost / Contribution p.u.
Contribution p.u. = SP – Variable cost p.u.
= 10 - 4 = Rs 6 p.u.
BEP (in output) = 42,000 / 6 = 7000 units

BEP ( in sales) = Fixed Cost / P/v ratio

P/v ratio = Contribution p.u./ Selling Price p.u.*100
= 6 / 10 * 100 = 60%
BEP = 42,000/ 0.60 = Rs 70,000

Turnover required to earn desired profit of Rs 60,000 = (Fixed Cost + Desired Profit)/Contribution p.u.
= (42,000 + 60,000) / 6
= 17,000 units

= (Fixed Cost + Desired Profit)/P/V ratio

= (42,000 + 60,000) / 0.60
= Rs 1,70,000
MOS = Total Sales – Break Even Sales
= 1,70,000 – 70,000
= Rs. 1,00,000

Q3. Given below is the following information:

Unit Selling Price Rs.20

Variable Cost p.u. Rs.12
Fixed Overhead p.a. Rs.20,000
What volume of sales for a desired profit (after tax) of Rs.12,000 p.a.? Assuming 40% tax.
Solution:
Volume of sales for desired Profit = Fixed Cost + Desired Profit
Contribution p.u.
Contribution p.u. = SP – Vc p.u. = 20 – 12 = Rs 8 p.u.
Here in above formula the desired profit should be before tax

Therefore, before tax desired profit = Desired Profit after Tax

1 – Tax Rate
= 12000/ (1 – 0.40) = Rs 20,000.
Now, Volume of Sales required = (20,000 + 20,000)/8 = 5000 units

If Sales in Rs have to be computed to earn desired profit then formula will be,
Fixed Cost + Desired Profit
P/V Ratio
P/V Ratio = Contribution p.u. * 100 = 8/12 * 100 = 66.67%
Selling Price p.u.
Now, Sales Required in Rs. = (20,000 + 20,000)/ 0.6667 = Rs.60,000 (approx)

Q4. A company budgeted a production of 3,00,000 units at a variable cost of Rs. 10 each. The fixed costs
are Rs.15,00,000. The selling price is fixed to yield 20% profit on cost. You are required to calculate :
a) P/V Ratio
b) Break- Even Point
Solution:
Variable Cost = 3,00,000 * 10 = Rs. 30,00,000
Fixed Cost = Rs 15,00,000 (given)
Total Cost = Rs 45,00,000
Sales = Cost + 20 % Cost
= 45,00,000 + 20% of 45,00,000
= Rs 54,00,000
a) P/V Ratio = Contribution / Sales * 100
Contribution = Sales – Variable Cost
= 54,00,000 – 30,00,000 = Rs 24,00,000
P/V Ratio = (24,00,000)/(54,00,000) * 100 = 44.44%
b) Break Even Point = Fixed Cost / P/V Ratio
= 15,00,000/0.4444 = Rs 33,75,338

Q5. The following information is obtained from Saher Co. Ltd. In a certain year:

Sales Rs. 2,00,000

Variable Cost Rs.1,20,000
Fixed Cost Rs.60,000

i) Find the P/V Ratio, Break-even Point and Margin of Safety.

ii) Calculate the effect of 20% increase in selling price, 10% decrease in selling price and 5%
decrease in sales volume.
*Do first part yourself, Second part will be discussed in next class*