1 BEP (units) BEP (amount) BEP (amount) P/V ratio TOTAL FIXED COSTS SP per unit - VC per unit

2

BEP (units) x SP per unit TOTAL FIXED COST P/V ratio CONTRIBUTION per unit SP per unit Variable cost per unit SP per unit ASR - BESR

3

4

5

V/V ratio MARGIN of SAFETY MS (Amount) MARGIN of SAFETY MS (Units) MS ratio or % PROFIT PROFIT Sales Revenue for desired Op Profit

6

Units actually sold - BEP (units)

7

8 9 10

MARGIN OF SAFETY ASR (Actual sales revenue) MS (amount) x P/V ratio MS (units) x C M per unit FC + Desired Operating Profit

11

P/V ratio

P/V + V/V always equals 1

Q 1.

Data pertaining to M/s XYZ Ltd for the current year Particulars Total Costs Total Sales 1st Half 40,000 45,000 2nd Half 43,000 50,000

Assume equal fixed costs in the two half years Assume constant selling price and variable costs Calculate for the entire year :a. Total Profit b. P/V ratio c. Fixed costs d. BEP (amount) e. Safety margin % f. Sales volume required if desired profit is 14000 g. Profit if sales volume were 10% higher h. Sales volume required to maintain same profit if SP per unit reduced from Rs 10 to Rs 9 Ans Let additional units in 2nd half be X 43000 - 40000 = 3000 = V x X 50000 - 45000 = 5000 = S x X 3000/5000 = 60% = V/S = V/V ratio So P/V ratio = contribution/sales = 40% Of 95000, VC = 60% = 57000, Profit = 95000 - 83000 = 12000 So FC = 95000 -12000 - 57000 = 26000 BEP (amount) = FC / Contribution = 26000 / 40% = 65000 Safety margin = 95000 - 65000 = 30000 So Safety margin % = 30000/95000 = 31.58% Sales volume required if desired profit is 14000 (desired profit + FC) / PV ratio

(1400 + 26000) / 40% = 100,000 If sales volume were 10% higher total sales would be 95000 x 1.1 = 104,500 and Profit then will be MS(amount) x P/V ratio (104,500 - 65000) x 40% = 39500 x 40% = 15800 From P/V ratio of 40 % we know that CM is 40% of sales So at SP of Rs 10/- CM(unit) was Rs 4 & FC Rs 6 At SP of Rs 9/- CM(unit) will reduce to Rs 3 So sales volume reqd to maintain profit of 12000 will be (desired profit + FC) / new P/V ratio or (12000 + 26000) / (3/9) = 38000/0.333 = 114,000

Q 2.

From the following information, calculate the overall BEP(amount) for M/s ABC Ltd who have 3 products - X, Y, & Z Product X Product Y Product Z 200,000 300,000 500,000 20% 30% 40% 22,000 31,000 37,000

Sales P/V ratio Fixed Cost

Ans Sales P/V ratio Fixed Cost Contribution

200,000 20% 22,000 40,000

300,000 30% 31,000 90,000

500,000 40% 37,000 200,000

1,000,000 90,000 330,000

Overall P/V ratio

330,000 / 1000,000 = 33 %

BEP (amount) = 90,000 / 33 % = 272,727 checking 2 3 5 54,545 81,818 136,364 272,727 20% 30% 40% 10,909 24,545 54,546 90,000

Q 3.

M/s XYZ Ltd has 2 factories whose details are given below. If they merge the two factories, calculate (a) The overall break even sales revenue, (b) The break even capacity utilisation %, and (c) The profits if the merged plant runs at 75% capacity. Factory 1 100 300 220 40 Factory 2 60 120 90 38

Particulars Present capacity utilisation % Sales (Rs Lakhs) Variable costs (Rs Lakhs) Fixed costs (Rs Lakhs)

Ans

at 100 % capacity utilisation Factory Factory 1 2 Merged 300 200 500 220 150 370 80 50 130 40 130/500 78/26% 38 78 26% Rs 300 Lakhs at 75% Merged 375 277.5 97.5 78

Particulars Sales (Rs Lakhs) LESS Variable costs (Rs Lakhs) Contribution Fixed costs (Rs Lakhs) Overall P/V ratio Break even revenue Break even capacity utilisation Profits at 75% capacity or

300 L/500 L 97.5 L - 78 L

60% Rs 19.5 Lakhs

Profits = (actual sales - BE sales) x P/V ratio 75 L x 26%

(375 L - 300 L) x 26%

Rs 19.5 Lakhs

Q 4.

Study the data given below and answer the questions that follow. Particulars Selling Price per pair Variable Expenses Saleman's commission Total variable expenses Annual Fixed expenses :Rent Salaries Advertising Misc other fixed expenses Total annual fixed expenses Amount 30 19.5 1.5 21

60,000 200,000...