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Exercise on Marginal Costing and Cost Volume Profit Analysis Exercise1

A company wants to buy a new machine to replace one which is having frequent break-downs. It received offers for two models M1 & M2. Further details regarding these models are given below: Installed capacity (units) Fixed overheads per annum (Rs.) Estimated profit at the above capacity (Rs.) M1= 10,000; M2 =10,000 M1= 2, 40,000 & M2=1, 00,000 M1= 1, 60,000 & M2=1, 00,000

The product manufactured using this type of machine (M1 or M2) is sold at Rs. 100 per unit. You are required to determine: a) Break-even level of sales for each model. b) The level of sales at which both the models will earn same profit. c) The model suitable for different level of demand for the product.

Two firms A co. & B co. sell the same type of product in the same market. Their budgeted Profit & Loss account for the year ending 31st March, 2010 are as follows: Sales 500000 600000 (-)Variable cost 400000 400000 (-)Fixed cost 30000 70000 = Profit 70000 130000 Required: Calculate at which sales volume both the firms will earn equal profit. State which firm is likely to earn greater profit in conditions of: Heavy demand for the product. Low demand for the product.

Company A and Company B both under the same management make and sell the same type of product. Their budget profit and loss account for the half year ending 30th june 2000 are as follows:

Particulars Sales Variable cost Fixed cost Profit You are required to calculate. 1) 2) 3) 4) 5)

A Co. 3, 00,000 2, 40,000 30,000 30,000

B Co. 3, 00,000 2, 00,000 70,000 30,000

Profit volume ratio of each. Break even point of each. Margin of safety of each. The sales volume at which each of the two companies will make a profit of Rs. 10,000. Which company makes more profit in case of a) Heavy demand for products. b) Low demand for products.

The sales and profit during two years were as follows: Year 1997 1998 You are required to calculate 1) 2) 3) 4) 5) 6) 7) Sales 1, 50,000 1, 70,000 Profit 20,000 25,000

P/v ratio Fixed cost BEP The sales required to earn a profit of Rs. 40,000 The profit made when sales are Rs. 2,50,000 Margin of safety at a profit of Rs. 50,000 Variable cost of the two periods

From the following particulars calculate BEP. Sales Variable cost Fixed overheads also calculate: 1) 2) 3) Rs. 2, 00,000 Rs. 1, 20,000 Rs. 30,000

New BEP if selling price is reduced by 10%. New BEP if variable cost is increased by 10%. New BEP if fixed cost is increased by 10%.

From the following particulars calculate 1) P/v ratio 2) BEP 3) Margin of safety 4) Sales required to earn a profit of Rs. 1, 50,000 5) Profit when sales amounts to Rs. 10, 00,000 6) Margin of safety if the company is earning a profit of Rs. 20, 00,000 Fixed Cost Profit Sales = = = Rs. 1, 50,000 Rs. 1, 00,000 Rs. 5, 00,000

Raj Corporation has prepared the following budget estimate for the year 1999 - 2000. Sales (units) 15,000 Fixed cost Rs. 34,000 Sales value Rs. 1, 50,000 Variable cost per unit Rs. 6 You are required to calculate 1) 2) 3) 4) P/v ratio BEP Margin of safety Calculate the revised P/v ratio, BEP and Margin of safety in each of the following cases: a) Decrease of 10% in selling price. b) Increase of 10% in variable cost. c) Increase of sales unit by 2000. d) Increase of Rs. 6000 in fixed cost.

From the following particulars, calculate i) BEP in terms of sales value and in units. ii) No. of units that must be sold to earn a profit of Rs. 90,000. Fixed factory overheads Fixed selling overheads Variable manufacturing cost per unit Variable selling cost per unit Selling price per unit Rs. 60,000 Rs. 12,000 Rs. 12 Rs. 3 Rs. 24

From the following information calculate (i) Contribution / Sales ratio (ii) Break even point (iii) Margin of safety Total sales Selling price per unit Variable cost per unit Fixed cost Rs. 3, 60,000 Rs. 100 Rs. 50 Rs. 1, 00,000

(iv) If the selling price is reduced to Rs. 90 by how much margin of safety reduced.

Exercise 10
Shri Shakti Appliance Ltd., an home appliance manufacturer has always sold its product through wholesalers. Last year its sales were Rs. 20, 00,000 yielding a net profit of 10% of Sales. As a result of increase in appliance sales through departmental stores and mail order business establishments, the company is considering the elimination of wholesalers and selling directly to retailers. It is estimated that it would result in 40% drop in sales. But net profit will be Rs. 1, 80,000. Fixed expenses would increase from Rs. 2, 00,000 to Rs. 3, 00,000 owing to additional warehouses and distribution facilities. You are required to find out (i) Whether the proposed change would rise or lower the break even point in rupees by how much (ii) What would be the sales volume in rupees which would enable Shri Shakti Appliance Ltd., to obtain as much profit as it made last year.