Question

The following data are available from the records of a company:
Sales Rs. 60,000
Variable Cost Rs. 30,000
Fixed Cost Rs. 15,000
You are required to :
(a) Calculate the P/V Ratio, Break – Even Point and Margin of Safety at this level.
(b) Calculate the effect of 10% increase in the sale price.
(c) Calculate the effect of 10% decrease in the sale price.

Answer 1

Answer:

Explanation:

Basic Marginal Cost  A company has an opening stock of 6,000 units of output. The production planned for the current period is 24,000 units and expected sales for the current period amount to 28,000 units.  The selling price per unit of output is Rs.10.  Variable cost per unit is expected to be Rs. 6 per unit while it was only Rs.  5 per unit during the  previous period.   What is the Break Even volume  for the current period if the  total fixed costs for the current period is Rs. 86,000? Assume that the first In first out system is followed.   Assume that the Last in first out system is followed. SOLUTION:- Statement of Break Even Point (FIFO) Nature  Quantity  contribution per unit  Total contribution Opening stock  6000  5/-  30,000 Current production 14,000  4/-  56.000 (B.f.) ∴  Break  event point 20,000 unit  fixed cost  86.000  Hence, Under FIFO System is covered by selling of  20000 units. There fore. The sale of 20.000 units is the break even point.                           Statement of break event point (LIFO) Nature  Quantity  Contribution per unit  Total contribution Current   21,500  4/-  4/- Opening stock  -  5/-  -   21.500     86.000 ∴ Break Even Point =  21,500 units ---------------------------------------------------------------------------------------------------------

Answer 2

(a)Profit volume ratio  = 50%

Break – Even Point  = 30000

Margin of Safety =  30000

(b) Profit volume ratio  = 54.54%

Break – Even Point  = 27502.75

Margin of Safety =  38497.25

(c) Profit volume ratio  = 44.44%

Break – Even Point  = 33753.37

Margin of Safety =  20246.63

Explanation:

(a)Profit Volume Ratio = $\frac{ Sales - Variable cost}{Sales}$ x 100

                                 = $\frac{60000 - 30000}{60000}$ x 100

                                  = 50%

Break - Even point= $\frac{Fixed Cost}{Profit volume Ratio}$

                              =  $\frac{15000}{50}\times100$

                              = 30000

Margin of safety = Total Sales - Break Even Point

                           = 60000 - 30000

                           =  30000

 (b) Calculate the effect of 10% increase in the sale price.

then Sale will be = 60000 + 6000 = 66000

Profit Volume Ratio = $\frac{ Sales - Variable cost}{Sales}$ x 100

                                 = $\frac{66000 - 30000}{66000}$ x 100

                                  = 54.54%

Break - Even point= $\frac{Fixed Cost}{Profit volume Ratio}$

                              =  $\frac{15000}{54.54}\times100$

                              = 27502.75

Margin of safety = Total Sales - Break Even Point

                           = 66000 - 27502.75

                           =  38497.25

(c) Calculate the effect of 10% decrease in the sale price.

then Sale will be = 60000 - 6000 = 54000

Profit Volume Ratio = $\frac{ Sales - Variable cost}{Sales}$ x 100

                                 = $\frac{54000 - 30000}{54000}$ x 100

                                  = 44.44%

Break - Even point= $\frac{Fixed Cost}{Profit volume Ratio}$

                              =  $\frac{15000}{44.44}\times100$

                              = 33753.37

Margin of safety = Total Sales - Break Even Point

                           = 54000 - 33753.37

                           =  20246.63

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