Question

Suppose Mitra & Sons’ breakeven point is revenue of Rs. 1,500,000 and fixed costs are Rs. 720,000. Compute the following:
a) Contribution Margin Percentage
b) Calculate the selling price if variable cost is Rs. 13 per unit
c) Suppose 90,000 units are sold, calculate the margin of safety in units and rupees
d) What does this tell you about the risk of firm making a loss? What are the most likely reasons for this risk to increase?

Answer 1

Explanation:

d) If selling price increased then BEP decreases. If selling price is decreased then BEP increases. Thus, we can say that there is an inverse relationship between selling price and BEP.

If variable cost are decreased no, doubt profit will increase and if variable cost increases then obviously profit will decrease so then the firm will be a making a loss..

The most likely reason for the increments of risk is when variable cost per unit increases, continuously.