<\/span><\/b><\/p>\n

 <\/p>\n

\u00a0<\/span><\/b><\/p>\n

Cost Volume Profit Analysis<\/span><\/b><\/b><\/h3>\n

The cost volume profit analysis (CVPA) is also known as breakeven analysis.<\/span><\/p>\n

CVPA determines the\u00a0breakeven point\u00a0for different\u00a0sales\u00a0volumes and cost structures. <\/span><\/p>\n

It can be useful for managers for making short-term business decisions. <\/span><\/p>\n

\u00a0<\/span><\/p>\n

CVPA makes several assumptions; sales price,\u00a0fixed cost and variable cost\u00a0per unit are constant in CVPA. <\/span><\/p>\n

CVPA also manages contribution margin. <\/span><\/p>\n

The contribution margin is the difference between total sales and total variable costs. <\/span><\/p>\n

The main motive of the business is to earn the profits.<\/span><\/p>\n

For profit, the contribution margin must be exceed to total fixed costs. <\/span><\/p>\n

The contribution margin may also be calculated per unit. <\/span><\/p>\n

\u00a0<\/span><\/p>\n

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Under the cost volume profit analysis, we will study the following:<\/span><\/b><\/p>\n

Contribution margin<\/span><\/p>\n

Profit volume ratio, contribution margin ratio<\/span><\/p>\n

Determination of selling price, selling price per unit<\/span><\/p>\n

Profit calculation at different bases, realize profit<\/span><\/p>\n

Determination of profit from sales volume, budgeted sales volume<\/span><\/p>\n

Determination of profit on selling price<\/span><\/p>\n

Determination of profit on cost price<\/span><\/p>\n

Profit on margin of safety<\/span><\/p>\n

Cost volume ratio<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Under the break-even point analysis, we will study the following:<\/span><\/b><\/p>\n

Break-even analysis under changed situation<\/span><\/p>\n

Margin of safety<\/span><\/p>\n

Required sales for desired profit<\/span><\/p>\n

Cash break-even point<\/span><\/p>\n

Application of marginal costing<\/span><\/p>\n

\u00a0<\/p>\n

\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Break Even Point Analysis<\/span><\/b><\/b><\/h2>\n

Break-even point analysis is the relationship between cost volume and profits at various levels of activity.<\/span><\/p>\n

Under this system, variable cost, fixed cost, volume and changing profit are analyzed.\u00a0 <\/span><\/p>\n

Break-even point<\/span> analysis is the part of cost volume profit analysis. <\/span><\/p>\n

It tells us about the level of sales where revenue equal to expenses viz total cost is equal to total sales. <\/span><\/p>\n

In other words, if there is no profit<\/span><\/b>, no loss<\/b> <\/span>that is called break-even point<\/span><\/b>. <\/span><\/p>\n

\u00a0<\/span><\/p>\n

It is the important tool for profit planning. <\/span><\/p>\n

If the production or sales is higher than breakeven point, there is profit. <\/span><\/p>\n

In the same way, if there is production or sales less than breakeven point, there is loss.<\/span><\/p>\n

There are three types of breakeven point:<\/span><\/p>\n

Contribution margin income statement approach<\/span><\/p>\n

Graphic approach<\/span><\/p>\n

Formulas approach <\/span><\/p>\n

\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b><\/p>\n

Sales or production\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = Break-even point,\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 No profit no loss<\/span><\/p>\n

Sales or production\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 > Break-even point,\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Profit<\/span><\/p>\n

Sales or production\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 < Break-even point,\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Loss<\/span><\/p>\n

\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n

Formulas to find out break-even point <\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n\n

\n Breakeven point (in units)<\/span><\/p>\n<\/td>\n	\n = <\/span><\/p>\n<\/td>\n	\n Fixed cost \u00f7 (SPPU \u2013 VCPU) <\/span><\/p>\n<\/td>\n<\/tr>\n
\n Or <\/span><\/p>\n<\/td>\n	\n =<\/span><\/p>\n<\/td>\n	\n Fixed cost \u00f7 Contribution margin <\/span><\/p>\n<\/td>\n<\/tr>\n
\n \u00a0<\/span><\/p>\n<\/td>\n	\n \u00a0<\/span><\/p>\n<\/td>\n	\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n
\n Breakeven point (in amount)\u00a0 <\/span><\/p>\n<\/td>\n	\n =<\/span><\/p>\n<\/td>\n	\n Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n
\n Or <\/span><\/p>\n<\/td>\n	\n =<\/span><\/p>\n<\/td>\n	\n BEP in units \u00d7 SPPU<\/span><\/p>\n<\/td>\n<\/tr>\n
\n \u00a0<\/span><\/p>\n<\/td>\n	\n \u00a0<\/span><\/p>\n<\/td>\n	\n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n
\n Break-even point ratio<\/span><\/p>\n<\/td>\n	\n =<\/span><\/p>\n<\/td>\n	\n Break-even point in amount \u00f7 Sales in amount<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/p>\n <\/p>\n Break-even point analysis<\/span><\/em><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Assumption under breakeven point analysis<\/span><\/strong><\/h3>\n While calculating BEP, following assumption keep in mind:<\/span><\/p>\n All cost can be classified into fixed cost and variable cost viz no place for semi-variable cost <\/span><\/p>\n Fixed cost will remain constant (invariable) but variable cost are vary (fluctuate)<\/span><\/p>\n Selling price per unit remains constant (invariable). <\/span><\/p>\n It is not changed during the period<\/span><\/p>\n Production and sales remain unchanged during the period<\/span><\/p>\n Changing in opening stock and closing stock are not significant (important)<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Advantages of break-even analysis | Usage of break-even analysis<\/span><\/b><\/h3>\n The major advantages of break-even analysis are as follows: <\/span><\/p>\n It measure profit and losses at different levels of production and sales.<\/span><\/p>\n It helps to predict the effect of changes in sales prices.<\/span><\/p>\n It analyzes the relationship between fixed and variable costs.<\/span><\/p>\n It predicts the effect of cost and efficiency changes on profitability.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/h3>\n Disadvantages of break-even analysis | Limitations of break-even analysis<\/span><\/b><\/h3>\n The major disadvantages of break-even analysis are as follows: <\/span><\/p>\n It assumes that sales prices are constant at all levels of output.<\/span><\/p>\n It assumes production and sales are the same.<\/span><\/p>\n Break even charts may be time consuming to prepare.<\/span><\/p>\n It can only apply to a single product or single mix of products.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b>\u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2A<\/span><\/b><\/p>\n Palpali Dhaka (P) Ltd has provided following data for particular product:<\/b><\/span><\/p>\n\n\n\n\n\n\n \n VCPU:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n<\/td>\n \n SPPU\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $300<\/span><\/p>\n<\/td>\n<\/tr>\n \n Materials<\/span><\/p>\n<\/td>\n \n $100<\/span><\/p>\n<\/td>\n \n Fixed cost \u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $135,000 <\/span><\/p>\n<\/td>\n<\/tr>\n \n Labour<\/span><\/p>\n<\/td>\n \n $70<\/span><\/p>\n<\/td>\n \n Sales units\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,500 Units<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable cost<\/span><\/p>\n<\/td>\n \n $30<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (a) P\/V Ratio; (b) BEP in amount; (c) BEP in units; (d) BEP ratio <\/span><\/p>\n [Answer: (a) 1\/3 or 0.333; (b) $405,000; (c) 1,350 units; (d) 90%]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Profit volume ratio (P\/V Ratio)<\/span><\/b>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = (SPPU \u2013 VCPU) \u00f7<\/span> SPPU<\/span><\/p>\n = ($300 \u2013 $200) \u00f7<\/span> $300<\/span><\/p>\n = $100 \u00f7<\/span> $300<\/span><\/p>\n = 1\/3 or 0.3333<\/span><\/p>\n \u00a0<\/span><\/p>\n Breakeven point in rupees (BEP)<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio<\/span><\/p>\n = $135,000 \u00f7<\/span> 1\/3<\/span><\/p>\n = $405,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Breakeven point (in units)<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n = $135,000 \u00f7<\/span> ($300 \u2013 S200)<\/span><\/p>\n = $135,000 \u00f7<\/span> $100<\/span><\/p>\n = 1,350 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Breakeven point ratio (BEP ratio)<\/span><\/b><\/p>\n Sales = 1,500 units x $300 = $450,000<\/span><\/i><\/p>\n Now, <\/span><\/p>\n = BEP in amount \u00f7<\/span> Sales in amount<\/span><\/p>\n = $405,000 \u00f7<\/span> $450,000<\/span><\/p>\n = 0.90 or 90%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Break-Even Analysis under Changed Situation<\/span><\/b><\/b><\/h3>\n The prices of most products are affected according to demand and supply. <\/span><\/p>\n Economics tells \u201cmore supply decrease price and less supply increase price.\u201d <\/span><\/p>\n Demand and supply change variable cost, fixed cost and selling price. <\/span><\/p>\n According to syllabus, there are three changing:<\/span><\/p>\n Change on variable cost<\/span><\/p>\n Change on fixed cost<\/span><\/p>\n Change on selling price<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Under manufacturing expenses, cost of raw materials, labour charge and direct expenses etc are changed. <\/span><\/p>\n Under operating expenses, office expenses, administrative expenses etc are changed. <\/span><\/p>\n These changes effects different cost. <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Change on variable cost<\/span><\/b><\/p>\n This change effects profit volume ratio and breakeven point.\u00a0\u00a0 <\/span><\/p>\n Revised P\/V ratio = 1 \u2013 (Revised VC \u00f7 SP) <\/span><\/p>\n Revised BEP = Fixed cost \u00f7 Revised P\/V ratio<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Changes on fixed cost<\/span><\/b><\/p>\n This change effects BEP <\/span><\/p>\n = (Fixed cost present + Additional fixed cost) \u00f7 P\/V ratio <\/span><\/p>\n = Revised fixed cost \u00f7 P\/V ratio <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Changes selling price<\/span><\/b><\/p>\n This change effects variable cost, BEP, contribution margin, profit and tax.<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2B<\/span><\/b><\/p>\n AM Manufacturing Company has following data:<\/b><\/span><\/p>\n Variable cost per unit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $150<\/span><\/p>\n Selling price per unit\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $250<\/span><\/p>\n Fixed cost \u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $500,000 <\/span><\/p>\n Sales units\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,500 Units<\/b><\/span><\/p>\n Required: (a) P\/V Ratio (old); (b) BEP in rupees and units (old); (c) Revised selling price per unit if it is increased by 10% <\/span><\/p>\n (d) Revised P\/V ratio; (e) Revised BEP in rupees <\/span><\/p>\n [Answer: (a) 40%; (b) $12,50,000\u00a0 and 5,000 units; <\/span><\/i><\/p>\n (c) $275; (d) 0.4545; (e) $11,00,110]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n P\/V Ratio <\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7<\/span> SPPU<\/span><\/p>\n = ($250 \u2013 $150) \u00f7<\/span> $250<\/span><\/p>\n = $100 \u00f7<\/span> $250<\/span><\/p>\n = 0.4 or 40%<\/span><\/p>\n \u00a0<\/span><\/p>\n Revised breakeven point in amount<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio <\/span><\/p>\n = $500,000 \u00f7<\/span> 0.4<\/span><\/p>\n = $12,50,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n BEP units old<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n = $500,000 \u00f7<\/span> ($250 \u2013 $150)<\/span><\/p>\n = $500,000 \u00f7<\/span> $100<\/span><\/p>\n = 5,000 units<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Revised sales price per unit (if only SPPU increase by 10%)\u00a0\u00a0\u00a0\u00a0 <\/span><\/b><\/p>\n = $250 +<\/span> $250@ 10%\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = $250 +<\/span> $25<\/span><\/p>\n = $275<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Revised Profit volume ratio<\/span><\/b><\/p>\n = (Revised SPPU \u2013 VCPU) \u00f7<\/span> Revised SPPU <\/span><\/p>\n = ($275 \u2013 $150) \u00f7<\/span> $275<\/span><\/p>\n = $125 \u00f7<\/span> $275<\/span><\/p>\n = 0.4545 or 45.45%<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Revised breakeven point<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> Revised P\/V ratio <\/span><\/p>\n = $500,000 \u00f7<\/span> 0.4545<\/span><\/p>\n = $11,00,110<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Margin of Safety<\/span><\/b><\/b><\/h3>\n Sales beyond the breakeven point is called margin of safety. <\/span><\/p>\n It is the difference between the budgeted sales and breakeven point sales. <\/span><\/p>\n Margin of safety is also known the excess production over the breakeven point output. <\/span><\/p>\n Margin of safety gives some profit. <\/span><\/p>\n Breakeven point covers only upto fixed cost (viz. cost of materials + variable cost + fixed cost).<\/span><\/p>\n \u00a0<\/span><\/p>\n Formulas of marginal safety<\/span><\/b><\/h3>\n\n\n\n\n\n\n\n\n\n \n Margin of safety (in amount)<\/span><\/p>\n<\/td>\n \n = <\/span><\/p>\n<\/td>\n \n Actual sales \u2013 Breakeven point sales<\/span><\/p>\n<\/td>\n<\/tr>\n \n Or <\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Budgeted sales \u2013 Breakeven point sales<\/span><\/p>\n<\/td>\n<\/tr>\n \n Or <\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Profit \u00f7 P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Margin of safety (in units)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Profit \u00f7 Contribution per unit<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Margin of safety ratio<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Margin of safety \u00f7 Actual sales<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n <\/p>\n Margin of Safety<\/span><\/i><\/i><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2C<\/span><\/b><\/p>\n ABC Company has following data:<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Fixed assets \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $90,000<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Sales \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $300,000<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Profit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $60,000<\/span><\/p>\n Required: (a) Variable cost; (b) P\/V Ratio; (c) Breakeven point; (d) Margin of safety; (e) Margin of safety ratio<\/span><\/p>\n [Answer: (a) $150,000; (b) 50%; (c) $180,000;<\/span><\/i><\/p>\n \u00a0(d) $120,000; (e) 40%]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Variable cost <\/span><\/b><\/p>\n\n\n\n\n\n \n Sales<\/span><\/p>\n<\/td>\n \n = Variable cost +<\/span> Fixed cost +<\/span> Profit <\/span><\/p>\n<\/td>\n<\/tr>\n \n 300,000<\/span><\/p>\n<\/td>\n \n = Variable cost +<\/span> 90,000 +<\/span> 60,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable cost<\/span><\/p>\n<\/td>\n \n = $150,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Profit volume ratio<\/span><\/b><\/p>\n = (Sales \u2013 VC) \u00f7<\/span> Sales <\/span><\/p>\n = ($300,000 \u2013 $150,000) \u00f7<\/span> $300,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = $150,000 \u00f7<\/span> $300,000\u00a0\u00a0 <\/span><\/p>\n = 0.5 or 50%<\/span><\/p>\n \u00a0<\/span><\/p>\n Breakeven point (BEP)<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio\u00a0\u00a0\u00a0 <\/span><\/p>\n = $90,000 \u00f7<\/span> 0.5\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = $180,000 <\/span><\/p>\n \u00a0<\/span><\/p>\n Margin of safety (MOS)<\/span><\/b><\/p>\n = Actual sales \u2013<\/span> BEP sales <\/span><\/p>\n = $300,000 \u2013<\/span> $180,000\u00a0\u00a0 <\/span><\/p>\n = $120,000<\/span><\/p>\n \u00a0<\/span><\/p>\n Margin of safety ratio (MOS ratio)<\/span><\/b><\/p>\n = Margin of safety \u00f7<\/span> Actual sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = $120,000 \u00f7<\/span> $300,000\u00a0\u00a0 <\/span><\/p>\n = 0.4 or 40%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Required Sales for Desired Profit<\/span><\/b><\/b><\/h3>\n Sometimes manufacturing company wants to know the sales to earn desired profit. <\/span><\/p>\n Viz if the manufacturing company earned profit of certain amount, what will be the sales? <\/span><\/p>\n There are two types of profit. <\/span><\/p>\n Profit before tax and profit after tax.<\/span><\/p>\n \u00a0<\/span><\/p>\n Formulas related to desired profit <\/span><\/strong><\/h3>\n\n\n\n\n\n\n\n\n\n\n\n \n Sales \u00a0 (in $ before tax)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n (Fixed cost + Desired profit) <\/span>\u00f7<\/span> P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales \u00a0 (in $ after tax)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 tax)] <\/span>\u00f7<\/span> P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales \u00a0 (in $ per units)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n (Fixed cost + Desired profit) <\/span>\u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Required sales for equal profit\u00a0 <\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Difference in fixed cost <\/span>\u00f7<\/span> Difference in P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Required sales [profit % on sales, units]<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Fixed cost <\/span>\u00f7<\/span> (SPPU \u2013 VCPU \u2013 Profit per unit)<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span>\u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2D<\/span><\/b><\/p>\n DB Company (P) Ltd has provided these data:<\/span><\/p>\n Sales \u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10,00,000<\/span><\/p>\n Variable cost \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $600,000<\/span><\/p>\n Fixed cost \u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $150,000<\/span><\/p>\n Required: (1) P\/V Ratio; (2) BEP in amount; (3) Sales amount to earn profit $500,000<\/span><\/p>\n (4) Sales amount to earn profit $400,000 at 30% tax; (5) If a sale is $20\u201900,000, find out profit <\/span><\/p>\n [Answer: (1) 40%; (2) $375,000; (3) $16,25,000; <\/span><\/i><\/p>\n (4) $18,03,571; (5) $650,000]<\/span><\/i><\/p>\n SOLUTION:<\/span><\/b><\/p>\n Profit volume ratio<\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7<\/span> SPPU<\/span><\/p>\n = ($10,00,000 \u2013 $6,00,000) \u00f7<\/span> $10,00,000<\/span><\/p>\n = $4,00,000 \u00f7<\/span> $10,00,000<\/span><\/p>\n = 0.4 <\/span>or 40%<\/span><\/p>\n \u00a0<\/span><\/p>\n Breakeven point (BEP)<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio <\/span><\/p>\n = $150,000 \u00f7<\/span> 0.4<\/span><\/p>\n = $375,000<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales amount to earn profit $500,000<\/span><\/b><\/p>\n = (Fixed cost + Desired profit) \u00f7<\/span> P\/V ratio <\/span><\/p>\n = ($150,000 + $500,000) \u00f7<\/span> 0.4<\/span><\/p>\n = $650,000 \u00f7<\/span> 0.4<\/span><\/p>\n = $16,25,000<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales to earn $400,000 at 30% tax<\/span><\/b><\/p>\n = [Fixed cost + {Desired profit after tax \u00f7 (1 \u2013 tax)}] \u00f7<\/span> P\/V ratio <\/span><\/p>\n = [$150,000 + [$400,000 \u00f7 (1 \u2013 0.3)] \u00f7<\/span> 0.4<\/span><\/p>\n = [$150,000 + $571,429] \u00f7<\/span> 0.4<\/span><\/p>\n = $721,429 \u00f7<\/span> 0.4<\/span><\/p>\n = $18,03,571<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n If a sale is $20\u201900,000, find out profit <\/span><\/b><\/p>\n\n\n\n\n\n\n \n 20,00,000<\/span><\/p>\n<\/td>\n \n = ($150,000 + Desired profit) \u00f7<\/span> 0.4 <\/span><\/span><\/p>\n<\/td>\n<\/tr>\n \n 20,00,000 x 0.4<\/span><\/span><\/p>\n<\/td>\n \n = 150,000 + Desire profit <\/span><\/p>\n<\/td>\n<\/tr>\n \n 800,000<\/span><\/p>\n<\/td>\n \n = 150,000 + Desire profit <\/span><\/p>\n<\/td>\n<\/tr>\n \n Desire profit<\/span><\/p>\n<\/td>\n \n = $650,000\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2E<\/span><\/b><\/p>\n BM Manufacturing Company has following data:<\/span><\/p>\n Selling price per unit (SPPU) \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $90<\/span><\/p>\n Variable cost per unit (VCPU)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $50<\/span><\/p>\n Fixed cost \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $300,000<\/span><\/p>\n Required: (a) Profit volume ratio; (b) BEP sales units<\/span><\/p>\n (c) Determine rupee sales volume required to earn profit of $250,000 <\/span><\/p>\n (d) Determine the sales volume in units to earn 20% return on sales price per unit <\/span><\/p>\n (e) If the company can sell 8,000 units, what will be SPPU to earn $200,000 profit? <\/span><\/p>\n [Answer: (a) 44% approx; (b) 7,500 units; (c) $12,50,000; <\/span><\/i><\/p>\n (d) 13,636 units; (e) SPPU $112.50]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Profit volume ratio<\/strong><\/span><\/p>\n = (SPPU \u2013 VCPU) \u00f7 SPPU<\/span><\/p>\n = ($90 \u2013 $50) \u00f7 $90<\/span><\/p>\n = $40 \u00f7 90<\/span><\/p>\n = 0.44 or 44%<\/span><\/p>\n \u00a0<\/strong><\/span><\/p>\n Determine BEP sales units?<\/strong><\/span><\/p>\n Contribution = SPPU \u2013 VCPU = $90 \u2013 $50 = $40<\/em><\/span><\/p>\n  <\/p>\n = Fixed cost \u00f7 Contribution<\/span><\/p>\n = $300,000 \u00f7 $40<\/span><\/p>\n = 7,500 units<\/span><\/p>\n  <\/p>\n  <\/p>\n Sales required earning profit $250,000?<\/strong><\/span><\/p>\n = (Fixed cost + Desired profit) \u00f7 P\/V ratio<\/span><\/p>\n = ($300,000 + $250,000) \u00f7 0.44<\/span><\/p>\n = $550,000 \u00f7 0.44<\/span><\/p>\n = $12,50,000<\/span><\/p>\n  <\/p>\n  <\/p>\n Sales units to earn 20% profit on sales (20% of SPPU)<\/strong><\/span><\/p>\n Profit per unit = $90 \u00d7 20% = $18<\/span><\/p>\n = Fixed cost \u00f7 (SPPU \u2013 VCPU \u2013 Profit per unit)<\/span><\/p>\n = $300,000 \u00f7 ($90 \u2013 $50 \u2013 $18)<\/span><\/p>\n = $300,000 \u00f7 $22<\/span><\/p>\n = 13,636 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n If the company can sell 8,000 units, what will be SPPU to earn $200,000 profit? <\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n\n\n\n \n Sales units<\/span><\/p>\n<\/td>\n \n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU)\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 units<\/span><\/p>\n<\/td>\n \n = ($300,000 + $200,000) \u00f7<\/span> (SPPU \u2013 $50) <\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 units<\/span><\/p>\n<\/td>\n \n = $500,000 \u00f7<\/span> (SPPU \u2013 $50) <\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 (SPPU \u2013 $50)<\/span><\/p>\n<\/td>\n \n = $500,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 SPPU \u2013 $400,000<\/span><\/p>\n<\/td>\n \n = $500,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 SPPU<\/span><\/p>\n<\/td>\n \n = $500,000 + $400,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 8,000 SPPU<\/span><\/p>\n<\/td>\n \n = $900,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n SPPU<\/span><\/p>\n<\/td>\n \n = $900,000 \u00f7<\/span> 8,000 units <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $112.50<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Cash Break-Even Poin<\/span><\/b>t<\/span><\/b><\/p>\n Breakeven point tells about volume of sales to cover all the operating expenses. <\/span><\/p>\n Sales more than BEP are the profit. <\/span><\/p>\n Sales less than BEP are loss. <\/span><\/p>\n Sales equal to BEP means no profit no loss. <\/span><\/p>\n If manufacturing company is suffering from losses, company cannot pay operating expenses. <\/span><\/p>\n Sometimes fixed cost includes non-cash expenses like depreciation and amortization etc. <\/span><\/p>\n They should be deducted from fixed cost.<\/span><\/p>\n \u00a0<\/span><\/p>\n Formulas of cash breakeven point (in units)<\/span><\/strong><\/span><\/h3>\n = Fixed cost in unit \u00f7 SPPU \u2013 VCPU<\/span><\/p>\n = Fixed cost \u00f7 P\/V ratio<\/span><\/p>\n \u00a0<\/div>\n \u00a0<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n \n Non-operating income<\/span><\/b><\/p>\n<\/td>\n \n Non cash\/operating expenses and losses<\/span><\/b><\/p>\n<\/td>\n<\/tr>\n \n Interest on investment or deposit<\/span><\/p>\n<\/td>\n \n Interest on debenture or loan<\/span><\/p>\n<\/td>\n<\/tr>\n \n Dividend from shares<\/span><\/p>\n<\/td>\n \n Legal fee for issuing for shares and debenture <\/span><\/p>\n<\/td>\n<\/tr>\n \n Rent received from sub-letting<\/span><\/p>\n<\/td>\n \n All provisions and reserve <\/span><\/p>\n<\/td>\n<\/tr>\n \n Gain on sales of fixed assets or investment <\/span><\/p>\n<\/td>\n \n Donations, charity and presents<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n Loss on sales of fixed assets or investment <\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n All written off on patents, preliminary expenses etc<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n Depreciation, amortization\u00a0\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2F<\/span><\/b><\/p>\n The extracted data are taken from BK Garment (P) Ltd 31st<\/sup> December:<\/span><\/p>\n Fixed cost \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $600,000<\/span><\/p>\n Rent and taxes\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $200,000<\/span><\/p>\n Salary and wages \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $300,000<\/span><\/p>\n Depreciation on equipment \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $600,000<\/span><\/p>\n Selling price per unit $400 and variable cost per unit $300<\/span><\/p>\n Required: (1) P\/V Ratio; (2) BEP in units; (3) Cash fixed cost; (4) Cash BEP in units <\/span><\/p>\n [Answer: (1) 0.25; (2) 6,000 units; (3) $500,000; (4) $20,00,000]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Profit volume ratio<\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7 SPPU<\/span><\/p>\n = ($400 \u2013 $300) \u00f7 $400<\/span><\/p>\n = $100 \u00f7 $400<\/span><\/p>\n = 0.25 or 25%<\/span><\/p>\n \u00a0<\/span><\/p>\n BEP sales units<\/span><\/b><\/p>\n = Fixed cost \u00f7 (SPPU \u2013 VCPU)<\/span><\/p>\n = $600,000 \u00f7 ($400 \u2013 $300)<\/span><\/p>\n = $600,000 \u00f7 $100<\/span><\/p>\n = 6,000 units<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Cash fixed cost <\/span><\/b><\/p>\n = Fixed cost \u2013 Depreciation<\/span><\/p>\n = 600,000 \u2013 100,000<\/span><\/p>\n = $500,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Cash breakeven point in units<\/span><\/b><\/p>\n = Cash fixed cost \u00f7 P\/V ratio <\/span><\/p>\n = $500,000 \u00f7 0.25<\/span><\/p>\n = $20,00,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2G<\/span><\/b><\/p>\n Khurja Ceramic (P) Ltd manufactures different kind of cups, plates and mugs. Generally it is sold as 6 pieces a set. Following data are related to specific coffee mug set:<\/span><\/p>\n Selling price per set \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $200<\/span><\/p>\n Variable cost per set \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $150<\/span><\/p>\n Fixed cost \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $100,000 <\/span><\/p>\n Sales set\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 5,000<\/span><\/p>\n Required: net profit or loss by changing only required data:<\/span><\/p>\n (a) Selling price increase by 10%; (b) Variable cost decrease by 10%; (c) Fixed cost increase by $50,000;<\/span><\/p>\n (d) Decrease 10% in SPPU and increase VCPU 10%; (e) Increase 5% in SPPU but decrease 10% in sales units; <\/span><\/p>\n (f) Fixed cost decrease by $25,000 but increase 10% in sales units <\/span><\/p>\n \u00a0<\/span><\/p>\n Contribution Income Statement<\/span><\/b><\/h3>\n\n\n\n\n\n\n\n\n \n Particulars <\/span><\/p>\n<\/td>\n \n Base <\/span><\/p>\n<\/td>\n \n a<\/span><\/p>\n<\/td>\n \n b<\/span><\/p>\n<\/td>\n \n c<\/span><\/p>\n<\/td>\n \n d<\/span><\/p>\n<\/td>\n \n e<\/span><\/p>\n<\/td>\n \n f<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales (units x SPPU)<\/span><\/p>\n<\/td>\n \n 10,00,000<\/span><\/p>\n<\/td>\n \n 11,00,000<\/span><\/p>\n<\/td>\n \n 10,00,000<\/span><\/p>\n<\/td>\n \n 10,00,000<\/span><\/p>\n<\/td>\n \n 9,00,000<\/span><\/p>\n<\/td>\n \n 9,45,000<\/span><\/p>\n<\/td>\n \n 11,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Variable cost <\/span><\/p>\n<\/td>\n \n 7,50,000<\/span><\/p>\n<\/td>\n \n 7,50,000<\/span><\/p>\n<\/td>\n \n 6,75,000<\/span><\/p>\n<\/td>\n \n 7,50,000<\/span><\/p>\n<\/td>\n \n 8,25,000<\/span><\/p>\n<\/td>\n \n 7,50,000<\/span><\/p>\n<\/td>\n \n 7,50,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Contribution<\/span><\/p>\n<\/td>\n \n 2,50,000<\/span><\/p>\n<\/td>\n \n 3,50,000<\/span><\/p>\n<\/td>\n \n 3,25,000<\/span><\/p>\n<\/td>\n \n 2,50,000<\/span><\/p>\n<\/td>\n \n 75,000<\/span><\/p>\n<\/td>\n \n 1,95,000<\/span><\/p>\n<\/td>\n \n 3,50,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Fixed cost <\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n 1,50,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Net profit (loss)<\/span><\/p>\n<\/td>\n \n 1,50,000<\/span><\/p>\n<\/td>\n \n 2,50,000<\/span><\/p>\n<\/td>\n \n 2,25,000<\/span><\/p>\n<\/td>\n \n 1,00,000<\/span><\/p>\n<\/td>\n \n (25,000)<\/span><\/p>\n<\/td>\n \n 95,000<\/span><\/p>\n<\/td>\n \n 2,50,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/i><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n\n\n\n\n\n\n \n (a) New SPPU<\/span><\/i><\/p>\n<\/td>\n \n = 200@110%<\/span><\/i><\/p>\n<\/td>\n \n = 220<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n (b) New VCPU<\/span><\/i><\/p>\n<\/td>\n \n = 150@90%<\/span><\/i><\/p>\n<\/td>\n \n = 135<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n (c) New fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = 100,000 + 50,000<\/span><\/i><\/p>\n<\/td>\n \n = 150,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n (d) New SPPU<\/span><\/i><\/p>\n<\/td>\n \n = 200@90%<\/span><\/i><\/p>\n<\/td>\n \n = 180;<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n VCPU<\/span><\/i><\/p>\n<\/td>\n \n = 150@110%<\/span><\/i><\/p>\n<\/td>\n \n = 165<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n (e) New SPPU<\/span><\/i><\/p>\n<\/td>\n \n = 200@105%<\/span><\/i><\/p>\n<\/td>\n \n = 210;\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 5,000@90%<\/span><\/i><\/p>\n<\/td>\n \n = 4,500<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n (f) New fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = 100,000 \u2013 25,000<\/span><\/i><\/p>\n<\/td>\n \n = 75,000;<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 5,000@110%<\/span><\/i><\/p>\n<\/td>\n \n = 5,500<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/p>\n Application of Marginal Costing<\/span><\/b><\/b><\/h3>\n Marginal costing is a very useful tool for management. <\/span><\/p>\n The merit of marginal costing are as following:<\/span><\/p>\n (1) <\/span>Cost control<\/span><\/p>\n (2) Profit planning<\/span><\/p>\n (3) Evaluation of performance<\/span><\/p>\n (4) Decision making:<\/span><\/p>\n (a)\u00a0 <\/span><\/span>Fixation of selling piece<\/span><\/p>\n (b) <\/span>Make or buy decision<\/span><\/p>\n (c)\u00a0 <\/span><\/span>Selection of a suitable product mix<\/span><\/p>\n (d) <\/span>Effect of change in price<\/span><\/p>\n (e)\u00a0 <\/span><\/span>Maintaining a desired level of profit <\/span><\/p>\n (f)\u00a0\u00a0 <\/span><\/span>Alternative methods of production viz produced by hand or machine.<\/span><\/p>\n (g)\u00a0 <\/span><\/span>Diversification (wide range) of products<\/span><\/p>\n (h) <\/span>Closing down or suspending activities etc<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2H<\/span><\/b><\/p>\n The annual fixed cost of ABC Company is $2,40,000. The sales of the first year is $9,00,000 and the second year is $12,00,000 and profit for second year was $1,00,000 higher than first year.<\/span><\/p>\n Required: (a) P\/V Ratio; (b) If sales is $18,00,000 what will be profit for 3rd<\/sup> year? <\/span><\/p>\n (c) At what rupees volume does company break-even?<\/span><\/p>\n \u00a0[Answer:\u00a0 (a) P\/V Ratio = 1\/3; (b) Profit = 3,60,000; (c) BEP $= 7,20,000 ]<\/span><\/i><\/p>\n Solution: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n Year 1<\/span><\/b><\/i><\/p>\n<\/td>\n \n Year 2<\/span><\/b><\/i><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/i><\/b><\/p>\n<\/td>\n \n = $240,000<\/span><\/i><\/b><\/p>\n<\/td>\n \n $240,000<\/span><\/i><\/b><\/p>\n<\/td>\n<\/tr>\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = $900,000<\/span><\/i><\/p>\n<\/td>\n \n $12,00,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Profit<\/span><\/i><\/p>\n<\/td>\n \n = <\/span><\/i>?<\/span><\/i><\/i><\/p>\n<\/td>\n \n (<\/span>?<\/span><\/i> <\/i>+<\/span> 100,000)<\/i><\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Different in profit \u00a0 = (<\/span><\/i>?<\/span><\/i> <\/i>+<\/span><\/i> <\/i>1,00,000) \u2013\u00a0 <\/span><\/i>?<\/span><\/i> <\/i>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = 1,00,000<\/span><\/i><\/p>\n Different in sales \u00a0\u00a0 = 12,00,000 \u2013 9,00,000 \u00a0 = 3,00,000 <\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n = Difference in profit \u00f7 Difference in sales<\/span><\/p>\n = $100,000 \u00f7 $300,000<\/span><\/p>\n = 1\/3 or 0.333<\/span><\/p>\n \u00a0<\/span><\/p>\n Find out profit if sales are $18,00,000<\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n \n Sales <\/span><\/p>\n<\/td>\n \n =\u00a0 (Fixed cost + Desired profit) \u00f7<\/span> P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n $18,00,000<\/span><\/p>\n<\/td>\n \n = ($2,40,000 + Desired profit) \u00f7<\/span> 1\/3<\/span><\/p>\n<\/td>\n<\/tr>\n \n $18,00,000 x 1\/3<\/span><\/p>\n<\/td>\n \n = ($2,40,000 + Desired profit)<\/span><\/p>\n<\/td>\n<\/tr>\n \n $6,00,000<\/span><\/p>\n<\/td>\n \n = $2,40,000 + Desired profit<\/span><\/p>\n<\/td>\n<\/tr>\n \n Desired profit<\/span><\/p>\n<\/td>\n \n = $600,000 \u2013 $240,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $360,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n BEP in amount <\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio <\/span><\/p>\n = $240,000 \u00f7<\/span> 1\/3<\/span><\/p>\n = $720,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Mixed Problems and Solutions <\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2I<\/span><\/b><\/p>\n XYZ Company has just been incorporated and plans to produce a product that will sell for $10 per unit. Preliminary market surveys show that demand will be around 10,000 units per year.<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n The company has the choice of buying one of the two machines, each of which has a capacity of 10,000 units per year. Machine \u2018A\u2019 would have fixed costs of $30,000 per year and would yield a profit of $30,000 per year on the sale of 10,000 units. Machine \u2018B\u2019 would have fixed cost of $18,000 per year and would yield a profit of $22,000 per year on the sale of 10,000 units. Variable costs behave linearly for both machines. <\/span><\/p>\n Required: (a) P\/V Ratio; (b) Break- even sale for each machine; (c) Sales level where both machines are equally profitable;<\/span><\/p>\n (d) Range of sales where one machine is more profitable than other.<\/span><\/p>\n \u00a0 [Answer:\u00a0 (a) P\/V Ratio 0.60 and 0.4; <\/span><\/i><\/p>\n (b) $50,000; $45,000 (c) $60,000]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n Machine A<\/span><\/i><\/p>\n<\/td>\n \n Machine B<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n SPPU<\/span><\/i><\/p>\n<\/td>\n \n = $10<\/span><\/i><\/p>\n<\/td>\n \n SPPU<\/span><\/i><\/p>\n<\/td>\n \n = $10<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 10,000 units <\/span><\/i><\/p>\n<\/td>\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 10,000 units <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = $100,000<\/span><\/i><\/p>\n<\/td>\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = $100,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $30,000<\/span><\/i><\/p>\n<\/td>\n \n Fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $18,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Profit<\/span><\/i><\/p>\n<\/td>\n \n = $30,000 <\/span><\/i><\/p>\n<\/td>\n \n Profit<\/span><\/i><\/p>\n<\/td>\n \n = $22,000 <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = Fixed cost + Variable cost + Profit <\/span><\/i><\/p>\n<\/td>\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = Fixed cost + Variable cost + Profit <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n 100,000<\/span><\/i><\/p>\n<\/td>\n \n = 30,000 + Variable cost + 30,000<\/span><\/i><\/p>\n<\/td>\n \n 100,000<\/span><\/i><\/p>\n<\/td>\n \n = 18,000 + Variable cost + 22,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n VC<\/span><\/i><\/p>\n<\/td>\n \n = 40,000<\/span><\/i><\/p>\n<\/td>\n \n VC<\/span><\/i><\/p>\n<\/td>\n \n = 60,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n VCPU<\/span><\/i><\/p>\n<\/td>\n \n = $40,000 \u00f7 10,000 units <\/span><\/i><\/p>\n<\/td>\n \n VCPU<\/span><\/i><\/p>\n<\/td>\n \n = $60,000 \u00f7 10,000 units <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n = $4<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n = $6<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n\n\n\n\n\n\n\n \n Machine A<\/span><\/p>\n<\/td>\n \n Machine B<\/span><\/p>\n<\/td>\n<\/tr>\n \n = (Fixed cost + Profit) \u00f7 Sales <\/span><\/p>\n<\/td>\n \n = (Fixed cost + Profit) \u00f7 Sales <\/span><\/p>\n<\/td>\n<\/tr>\n \n = ($30,000 + $30,000) \u00f7 $100,000<\/span><\/p>\n<\/td>\n \n = ($18,000 + $22,000) \u00f7 $100,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n = $60,000 \u00f7 $100,000<\/span><\/p>\n<\/td>\n \n = $40,000 \u00f7 $100,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n = 0.60 or 60%<\/span><\/p>\n<\/td>\n \n = 0.40 or 40%<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Breakeven point in rupees (BEP) <\/span><\/b><\/p>\n\n\n\n\n\n\n \n Machine A<\/span><\/p>\n<\/td>\n \n Machine B<\/span><\/p>\n<\/td>\n<\/tr>\n \n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n<\/td>\n \n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n<\/td>\n<\/tr>\n \n = $30,000 \u00f7 0.6<\/span><\/p>\n<\/td>\n \n = $40,000 \u00f7 0.4<\/span><\/p>\n<\/td>\n<\/tr>\n \n = $50,000<\/span><\/p>\n<\/td>\n \n = $45,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n Required sales for equal profit <\/span><\/b><\/p>\n = Difference in fixed cost \u00f7 Difference in P\/V ratio <\/span><\/p>\n = ($36,000 \u2013 $18,000) \u00f7 (0.6 \u2013 0.4)<\/span><\/p>\n = $12,000 \u00f7 0.2<\/span><\/p>\n = $60,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2J<\/span><\/b><\/p>\n The installed capacity of ABC Company is 2,00,000 units per year and the normal capacity is 1,50,000 units per year. Standard variable manufacturing costs are $10 per unit and fixed factory overhead cost is $3,00,000 per year. Variable selling and distribution expenses are $2 per unit and fixed selling and distribution expenses are $1,56,000 per year. The unit selling price is $20.<\/span><\/p>\n The operating result for the last year is as follows:<\/span><\/p>\n Sales\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,20,000 units<\/span><\/p>\n Production\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 1,30,000 units <\/span><\/p>\n Beginning inventory\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a010,000 units<\/span><\/p>\n Required: (a) P\/V Ratio; (b) Break- even sales volume in amount; (c) Sales volume in units to earn a profit of $40,000;<\/span><\/p>\n (d) Sales volume in units required to earn a net income of 10% on sales. <\/span><\/p>\n [Answer:\u00a0 (a) 40%; (b) $11,40,000; (c) 57,000 units; (d) 76,000 units]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n VCPU:\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Manufacturing + S&D \u00a0\u00a0\u00a0\u00a0 = $10 + $2 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $12<\/span><\/i><\/p>\n Fixed cost:\u00a0\u00a0\u00a0 Factory + S&D \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $300,000 + $156,000 \u00a0 = $456,000<\/span><\/i><\/p>\n SPPU \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $20<\/span><\/i><\/p>\n Sales units \u00a0\u00a0 = 120,000 units <\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n = (S \u2013 V) \u00f7<\/span> S <\/span><\/p>\n = (20 \u2013 12) \u00f7<\/span> 20\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = 0.4 or 40%<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Breakeven point in rupees (BEP) <\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio <\/span><\/p>\n = $456,000 \u00f7<\/span> 0.4<\/span><\/p>\n = $11,40,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales units to earn $40,000 profit <\/span><\/b><\/p>\n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n = ($456,000 + $40,000) \u00f7<\/span> (S20 \u2013 S12)<\/span><\/p>\n = $456,000 \u00f7<\/span> $8<\/span><\/p>\n = 57,000 units <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales units to earn 10% profit on sales unit <\/span><\/b><\/p>\n Profit = 10% on sales units \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $20 @ 10%\u00a0 = $2<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = Fixed cost \u00f7<\/span> (SPPU \u2013 VCPU \u2013 Profit per unit)<\/span><\/p>\n = $456,000 \u00f7<\/span> ($20 \u2013 $12 \u2013 $2)<\/span><\/p>\n = $456,000 \u00f7<\/span> $6<\/span><\/p>\n = 76,000 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2K<\/span><\/b><\/p>\n The price structure of Magic Polymer Ltd is given related to footwear:<\/span><\/p>\n\n\n\n\n\n\n\n \n Particulars<\/span><\/p>\n<\/td>\n \n Per pair<\/span><\/p>\n<\/td>\n \n Fixed overheads per unit<\/span><\/p>\n<\/td>\n \n $50<\/span><\/p>\n<\/td>\n<\/tr>\n \n Materials<\/span><\/p>\n<\/td>\n \n $60<\/span><\/p>\n<\/td>\n \n Profit<\/span><\/p>\n<\/td>\n \n $50<\/span><\/p>\n<\/td>\n<\/tr>\n \n Labors<\/span><\/p>\n<\/td>\n \n $20<\/span><\/p>\n<\/td>\n \n Selling price per pair<\/span><\/p>\n<\/td>\n \n $200<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable overheads<\/span><\/p>\n<\/td>\n \n $20<\/span><\/u><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n $100<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n This is based on the manufacture of 100,000 pairs per annum.<\/span><\/p>\n The company expects that due to competition they will have to reduce selling prices, but they want to keep the total profits intact. How many cycles will have to be made to get the same amount of profits, if:<\/span><\/p>\n (a) The selling price is reduced by 10%?; (b) The selling price is reduced by 20%?<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [Answer: (a) 1,25,000 pairs; (b) 1,66,667 pairs]<\/i><\/span><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n Total VCPU \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $100<\/span><\/i><\/p>\n Fixed cost \u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = 100,000 units @ $ 50 \u00a0 = $50,00,000<\/span><\/i><\/p>\n Desire profit \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = 100,000 units @ $ 50 \u00a0 = \u00a0$50,00,000<\/span><\/i><\/p>\n SPPU \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $200<\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n If selling price reduces by 10%, find out sales units at same desire profit of $ 50,00,000 <\/span><\/b><\/p>\n New SPPU \u00a0\u00a0 = $200 @ 90%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $180<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n = ($50,00,000 + $50,00,000) \u00f7<\/span> ($180 \u2013 $100)<\/span><\/p>\n = $1,00,00,000 \u00f7<\/span> $80<\/span><\/p>\n = 125,000 pairs <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n If selling price reduces by 20%, find out sales units at same desire profit of $50,00,000 <\/span><\/b><\/p>\n New SPPU \u00a0\u00a0 = $200 @ 80%\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $ 160<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU)<\/span><\/p>\n = ($50,00,000 + $50,00,000) \u00f7<\/span> ($160 \u2013 $100)<\/span><\/p>\n = $1,00,00,000 \u00f7<\/span> $60<\/span><\/p>\n = 166,667 pairs<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2L<\/span><\/b><\/p>\n Bajaj Home Appliances has following data:<\/span><\/p>\n Sales of last year were $20,00,000 and its net profit 10% of sales. <\/span><\/p>\n \u00a0<\/span><\/p>\n As a result of the increase in appliance sales through departmental stores and mail-order business establishment, the company is considering elimination of wholesalers and selling directly to retailers.<\/span><\/p>\n \u00a0<\/span><\/p>\n It is estimated that this would result in a 40% drop in sales but net profit would be $1,80,000 due to the elimination of middlemen. Fixed expenses would increase from $2,00,000 to $3,00,000 owing to additional warehouses and distribution facilities. <\/span><\/p>\n You are required to find out:<\/span><\/p>\n (a) P\/V ratio for last year and current year <\/span><\/p>\n (b) Whether the proposed will change BEP in rupees? By how much?<\/span><\/p>\n (c) What would be the sale volume in rupees to obtain as much as profit of last year?<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [Answer:\u00a0 (i) 20% and 40%; (ii) Rs.10,00,000 and Rs.7,50,000; <\/i><\/span><\/p>\n Reduced by $2,50,000; (iii) Rs.12,50,000]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n \n Sales<\/span><\/i><\/p>\n<\/td>\n \n = $20,00,000<\/span><\/i><\/p>\n<\/td>\n \n Sales\u00a0 20,00,000 @ 60%<\/span><\/i><\/p>\n<\/td>\n \n = $12,00,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Net profit<\/span><\/i><\/p>\n<\/td>\n \n = 20,00,000 @ 10%\u00a0\u00a0 = $200,000<\/span><\/i><\/p>\n<\/td>\n \n Net profit \u00a0\u00a0\u00a0\u00a0 given<\/span><\/i><\/p>\n<\/td>\n \n = $180,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $200,000<\/span><\/i><\/p>\n<\/td>\n \n Fixed cost \u00a0\u00a0\u00a0 given<\/span><\/i><\/p>\n<\/td>\n \n = $300,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n\n\n\n\n\n \n P\/V ratio<\/span><\/p>\n<\/td>\n \n = (Fixed cost + Profit) \u00f7 Sales\u00a0 <\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Year 1<\/span><\/p>\n<\/td>\n \n = ($200,000 + $200,000) \u00f7 $20,00,000<\/span><\/p>\n<\/td>\n \n = 0.2<\/span><\/p>\n<\/td>\n<\/tr>\n \n Year 2<\/span><\/p>\n<\/td>\n \n = ($300,000 + $180,000) \u00f7 $20,00,000<\/span><\/p>\n<\/td>\n \n = 0.4<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Breakeven point in units and rupees (BEP) <\/span><\/b><\/p>\n\n\n\n\n\n \n BEP in units <\/span><\/p>\n<\/td>\n \n = Fixed cost \u00f7 P\/V ratio\u00a0\u00a0 <\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Year 1<\/span><\/p>\n<\/td>\n \n = $200,000 \u00f7 0.2<\/span><\/p>\n<\/td>\n \n = $10,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Year 2<\/span><\/p>\n<\/td>\n \n = $300,000 \u00f7 0.4<\/span><\/p>\n<\/td>\n \n = $750,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Here, <\/span><\/i><\/p>\n New proposal reduces BEP in rupees by 10,00,000 \u2013 750,000\u00a0 = 250,000<\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales in rupees if profit $200,000<\/span><\/b><\/p>\n = (Fixed cost + Desired profit) \u00f7<\/span> P\/V ratio <\/span><\/p>\n = ($300,000 + $200,000) \u00f7<\/span> 0.4<\/span><\/p>\n = $500,000 \u00f7<\/span> 0.4<\/span><\/p>\n = $12,50,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2M<\/span><\/b><\/p>\n ABC Company (P) Ltd produces a single product. Its fixed cost has been budgeted for annual range of operation of 30,000 units to 40,000 units. Net income at these two different points of operation has been presented below:<\/span><\/p>\n\n\n\n\n\n\n \n Units sold<\/span><\/p>\n<\/td>\n \n 30,000 units<\/span><\/p>\n<\/td>\n \n 40,000 units<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales revenue<\/span><\/p>\n<\/td>\n \n $3,00,000<\/span><\/p>\n<\/td>\n \n $4,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Cost of goods sold and other expenses<\/span><\/p>\n<\/td>\n \n $3,00,000<\/span><\/p>\n<\/td>\n \n $3,70,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Profit before tax<\/span><\/p>\n<\/td>\n \n Nil<\/span><\/p>\n<\/td>\n \n $30,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (a) P\/V ratio; (b) Fixed cost for the year; (c) Which sales volume in units will bring the company a profit of $18,000?<\/span><\/p>\n (d) If a reduction of 25% in the original sales [as required in [c] is made. By how much the selling price should be increased to put the company in breakeven level?<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [Answer:\u00a0 (a) 30%; (b) $90,000; (c) 36,000 units; (d) $10,333]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Profit volume ratio<\/span><\/b><\/p>\n = Difference in profit \u00f7 Difference in sales<\/span><\/p>\n = ($30,000 \u2013 Nil) \u00f7 ($400,000 \u2013 $300,000)<\/span><\/p>\n = $30,000 \u00f7 $100,000<\/span><\/p>\n = 0.3 or 30%<\/span><\/p>\n \u00a0<\/span><\/p>\n Fixed cost <\/span><\/b><\/p>\n\n\n\n\n\n\n \n P\/V ratio <\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n (Fixed cost + Profit) \u00f7 Sales<\/span><\/p>\n<\/td>\n<\/tr>\n \n 0.3<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n (Fixed cost + Nil) \u00f7 $300,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 0.3 x $300,000<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Fixed cost <\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost <\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $90,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales in rupees if profit $18,000<\/span><\/b><\/p>\n = (Fixed cost + Desired profit) \u00f7 P\/V ratio <\/span><\/p>\n = ($90,000 + $18,000) \u00f7 0.3<\/span><\/p>\n = $108,000 \u00f7 0.3<\/span><\/p>\n = $360,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2N<\/span><\/b><\/p>\n The Kantipur Club is making plans for dinner-dance. Each ticket will admit one couple to the dance and each partner to enjoy a buffet supper. The following information is providing:<\/span><\/p>\n Rent of hall\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $10,000<\/span><\/p>\n Fee to be paid to musical group\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $5,000<\/span><\/p>\n Ticket printing charge\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $1,000<\/span><\/p>\n Advertisement\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $3,500<\/span><\/p>\n Newsletter sending to club-members\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $500<\/span><\/p>\n Party favors per couple\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $100<\/span><\/p>\n Buffet dinner per person $250 or per couple \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 $ 500<\/span><\/p>\n Required: <\/span><\/p>\n (a) Calculate the number of tickets to be sold to break-even on the dance, if the price set is $650 per ticket.<\/span><\/p>\n (b) What price per ticket must be charged in order to break-even if expected number of tickets to be sold is 500 tickets? <\/span><\/p>\n [Answer:\u00a0 (a) 400 tickets; (b) $640]<\/span><\/i><\/p>\n SOLUTION: <\/span><\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n\n\n\n\n \n Fixed cost: \u00a0\u00a0 <\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n Variable cost: \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Rent of hall<\/span><\/i><\/p>\n<\/td>\n \n 10,000<\/span><\/i><\/p>\n<\/td>\n \n Buffet dinner $250 x 2<\/span><\/i><\/p>\n<\/td>\n \n 500<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Fee to musician<\/span><\/i><\/p>\n<\/td>\n \n 5,000<\/span><\/i><\/p>\n<\/td>\n \n Party favor<\/span><\/i><\/p>\n<\/td>\n \n 100<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Ticket printing<\/span><\/i><\/p>\n<\/td>\n \n 1,000<\/span><\/i><\/p>\n<\/td>\n \n Total<\/span><\/i><\/p>\n<\/td>\n \n + $600<\/span><\/u><\/i><\/p>\n<\/td>\n<\/tr>\n \n Advertisement<\/span><\/i><\/p>\n<\/td>\n \n 3,500<\/span><\/i><\/p>\n<\/td>\n \n SPPU (per ticket)<\/span><\/i><\/p>\n<\/td>\n \n $650<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Newsletters<\/span><\/i><\/p>\n<\/td>\n \n +\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 500<\/span><\/u><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Total<\/span><\/i><\/p>\n<\/td>\n \n $20,000<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/i><\/p>\n \u00a0<\/span><\/i>\u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n If SPPU is $650 find out BEP units <\/span><\/b><\/p>\n = Fixed cost \u00f7 (SPPU \u2013 VCPU)<\/span><\/p>\n = $20,000 \u00f7 ($650 \u2013 $600)<\/span><\/p>\n = $20,000 \u00f7 $150<\/span><\/p>\n = 400 units (ticket)<\/span><\/p>\n \u00a0<\/span><\/p>\n  <\/p>\n If BEP units are 500 tickets find out SPPU (<\/span><\/b>Let be SPPU = <\/span>?)<\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n\n\n \n BEP sales units<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n Fixed cost \u00f7 (SPPU \u2013 VCPU)<\/span><\/p>\n<\/td>\n<\/tr>\n \n 500<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $20,000 \u00f7 (<\/span>?<\/span> \u2013 $600)\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n \n 500 (<\/span>?<\/span> \u2013 $600)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $20,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 500<\/span>?<\/span> \u2013 $300,000)<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $20,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 500<\/span>?<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $20,000 + $300,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 500<\/span>?<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $320,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n ?<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $320,000 \u00f7 500<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n =<\/span><\/p>\n<\/td>\n \n $640<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Therefore, SPPU (?<\/span><\/span>) \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $640 <\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2O<\/span><\/b><\/p>\n The extracted data are given below related to cheese balls by Marigold Snacks (P) Ltd.\u00a0 The second column can be ignored since it is only one of the projections of an assistant accountant: But it may be useful to you:<\/span><\/p>\n\n\n\n\n\n\n\n\n \n Particulars <\/span><\/p>\n<\/td>\n \n Actual data<\/span><\/p>\n<\/td>\n \n Future estimation<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n First week of June, 2021<\/span><\/p>\n<\/td>\n \n Second week of June, 2021<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales in units<\/span><\/p>\n<\/td>\n \n 10,000<\/span><\/p>\n<\/td>\n \n 20,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Profit (loss) in amount <\/span><\/p>\n<\/td>\n \n (10,000)<\/span><\/p>\n<\/td>\n \n 10,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost in amount<\/span><\/p>\n<\/td>\n \n 30,000<\/span><\/p>\n<\/td>\n \n 30,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable cost per unit in amount<\/span><\/p>\n<\/td>\n \n 8<\/span><\/p>\n<\/td>\n \n 8<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n One the basis of first column, determine:<\/span><\/p>\n (a) What increase sales volume is required to cover an extra attractive packaging cost of $0.50 per unit to increase the sales at the existing selling price to yield zero profit?<\/span><\/p>\n (b) What increased sales volume is required at present fixed cost of $5,000 for that period while yielding a profit of $5,000.<\/span><\/p>\n (c) What increased sales volume is required to reach a profit of $4,000 while reducing selling price by 3%.<\/span><\/p>\n \u00a0[Answer:\u00a0 (a) 20,000 units, $2,00,000; (b) 20,000 units, $2,00,000;<\/span><\/i><\/p>\n \u00a0(c) 20,000 units, $1,94,000]<\/span><\/i><\/p>\n SOLUTION:<\/span><\/b> <\/b><\/p>\n Given and working note: <\/span><\/i><\/p>\n\n\n\n\n\n\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 10,000 units <\/span><\/i><\/p>\n<\/td>\n \n FCPU<\/span><\/i><\/p>\n<\/td>\n \n = $30,000 \u00f7 10,000 units<\/span><\/i><\/p>\n<\/td>\n \n = $3<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Profit (loss)<\/span><\/i><\/p>\n<\/td>\n \n = (10,000)<\/span><\/i><\/p>\n<\/td>\n \n Loss per unit<\/span><\/i><\/p>\n<\/td>\n \n = $10,000 \u00f7 10,000 units<\/span><\/i><\/p>\n<\/td>\n \n = $1<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $30,000<\/span><\/i><\/p>\n<\/td>\n \n SPPU<\/span><\/i><\/p>\n<\/td>\n \n = FCPU + VCPU \u2013 Loss<\/span><\/i><\/p>\n<\/td>\n \n = 3 + 8 \u2013 1 \u00a0\u00a0 = $10<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n VCPU<\/span><\/i><\/p>\n<\/td>\n \n = 8<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/i><\/p>\n If variable cost increases by $0.50 per unit, find out BEP sales units and BEP in amount<\/span><\/b><\/p>\n New VCPU \u00a0\u00a0 = 8 + 0.50 \u00a0\u00a0\u00a0 = $8.50<\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/p>\n\n\n\n\n\n\n\n \n BEP in units <\/span><\/i><\/p>\n<\/td>\n \n BEP in amount <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = Fixed cost \u00f7 (SPPU \u2013 VCPU)<\/span><\/i><\/p>\n<\/td>\n \n = BEP in units x SPPU<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = $30,000 \u00f7 ($10 \u2013 $8.5)<\/span><\/i><\/p>\n<\/td>\n \n = 20,000 x $10<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = $30,000 \u00f7 $1.5<\/span><\/i><\/p>\n<\/td>\n \n = $200,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = 20,000 units<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n If fixed cost increase by $5,000 and desire profit is $5,000; find out BEP sales units and BEP in amount<\/span><\/b><\/p>\n New fixed cost \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = 30,000 + 5,000 = 35,000<\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/p>\n\n\n\n\n\n\n\n \n BEP in units <\/span><\/i><\/p>\n<\/td>\n \n BEP in amount <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = (New fixed cost + Desired profit) \u00f7 (SPPU \u2013 VCPU)<\/span><\/i><\/p>\n<\/td>\n \n = BEP in units x SPPU<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = ($35,000 + $5,000) \u00f7 ($10 \u2013 $8)<\/span><\/i><\/p>\n<\/td>\n \n = 20,000 x $10<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = $40,000 \u00f7 $2<\/span><\/i><\/p>\n<\/td>\n \n = $200,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = 20,000 units<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/i><\/p>\n If fixed sales decrease by 3% and desire profit is $4,000, find out BEP sales units and BEP in amount<\/span><\/b><\/p>\n New SPPU \u00a0\u00a0 = 10 @ 97% \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $9.70<\/span><\/i><\/p>\n \u00a0<\/span><\/i><\/p>\n\n\n\n\n\n\n\n \n BEP in units <\/span><\/i><\/p>\n<\/td>\n \n BEP in amount <\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = (Fixed cost + Desired profit) \u00f7 (SPPU \u2013 VCPU)<\/span><\/i><\/p>\n<\/td>\n \n = BEP in units x SPPU<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = ($30,000 + $4,000) \u00f7 ($9.7 \u2013 $8)<\/span><\/i><\/p>\n<\/td>\n \n = 20,000 x $9.7<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = $34,000 \u00f7 $1.7<\/span><\/i><\/p>\n<\/td>\n \n = $194,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n = 20,000 units<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Click on the photo for FREE <\/span><\/b>e<\/span><\/b>Books<\/span><\/b><\/p>\n <\/a><\/p>\n \u00a0<\/span><\/span><\/p>\n \u00a0<\/span><\/span><\/p>\n \u00a0<\/span><\/span><\/p>\n TU Questions and Solutions <\/span><\/strong><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2060\/S\u00a0 Modified <\/span><\/b><\/p>\n AK Firm purchased certain item for $80,000 and sold the same to a customer for $100,000. Firm charged a profit of 10% on sales value<\/span><\/p>\n Required: (1) <\/span>Profit volume ratio; (2) Fixed cost; (3) BEP in Rs<\/span><\/p>\n (4) Required sales volume to earn after tax profit of $18000, if tax rate is 40%.<\/span><\/p>\n [Answer: (a) 20%; (b) $10,000; (c) $50,000; (d) $200,000]<\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/b><\/p>\n Profit volume ratio<\/span><\/b><\/p>\n \u00a0<\/span><\/p>\n = (Fixed cost + Net profit) \u00f7 Sales revenue <\/span><\/p>\n = ($10,000 + $10,000) \u00f7 $100,000<\/span><\/p>\n = $20,000 \u00f7 $100,000<\/span><\/p>\n = 0.20 or 20%<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Fixed cost<\/span><\/b><\/p>\n\n\n\n\n\n \n Sales<\/span><\/p>\n<\/td>\n \n = FC + VC +Profit <\/span><\/p>\n<\/td>\n<\/tr>\n \n $100,000<\/span><\/p>\n<\/td>\n \n = FC + $80,000 + $10,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/p>\n<\/td>\n \n = $10,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n BEP in amount <\/span><\/b><\/p>\n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n = $10,000 \u00f7 0.20<\/span><\/p>\n = $50,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales to earn $18,000 at 40% tax<\/span><\/b><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> P\/V ratio\u00a0 <\/span><\/p>\n = $10,000 + [{$18,000 \u00f7 (1 \u2013 0.40)] \u00f7<\/span> 0.20<\/span><\/p>\n = $10,000 + $30,000 \u00f7<\/span> 0.20<\/span><\/p>\n = $40,000 \u00f7<\/span> 0.20<\/span><\/p>\n = $200,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2061\/S\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Modified <\/span><\/b><\/p>\n The income statement of AJ Company has been given below:<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n Particulars <\/span><\/p>\n<\/td>\n \n Amount<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales unit<\/span><\/p>\n<\/td>\n \n 20,000 units<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales revenue<\/span><\/p>\n<\/td>\n \n $600,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Cost of goods sold:\u00a0 <\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable manufacturing cost<\/span><\/p>\n<\/td>\n \n 300,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed manufacturing cost<\/span><\/p>\n<\/td>\n \n 200,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Total cost of goods sold<\/span><\/p>\n<\/td>\n \n 500,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Gross margin<\/span><\/p>\n<\/td>\n \n 100,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less:\u00a0\u00a0 Variable selling cost<\/span><\/p>\n<\/td>\n \n 100,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed selling cost<\/span><\/p>\n<\/td>\n \n + 50,000<\/span><\/u><\/p>\n<\/td>\n \n (150,000)<\/span><\/p>\n<\/td>\n<\/tr>\n \n Net profit (loss) before tax <\/span><\/p>\n<\/td>\n \n (50,000)<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (1) Profit volume ratio; (2) Break even sales volume in amount; (3) Sales volume (units) to earn 20% profit on sales;<\/span><\/p>\n (4) Sales volume (in rupees) to earn $100,000 after tax profit; tax rate 50%<\/span><\/p>\n [Answers: (1) 1\/3 or 33.33%; (2) $7,50,000; <\/span><\/i><\/p>\n (3) 37,000 units; (4) $13,50, 000]<\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/p>\n Given and working note:\u00a0 <\/span><\/i><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n \n Sales revenue<\/span><\/i><\/p>\n<\/td>\n \n = $600,000<\/span><\/i><\/p>\n<\/td>\n \n Fixed cost manufacturing<\/span><\/i><\/p>\n<\/td>\n \n = $200,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Sales units<\/span><\/i><\/p>\n<\/td>\n \n = 20,000 units<\/span><\/i><\/p>\n<\/td>\n \n Fixed cost S&D<\/span><\/i><\/p>\n<\/td>\n \n = \u00a0\u00a0$50,000<\/u><\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n SPPU<\/span><\/i><\/p>\n<\/td>\n \n = $600,000 \u00f7 20,000\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 = $30<\/span><\/i><\/p>\n<\/td>\n \n Total fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $250,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Variable cost manufacturing<\/span><\/i><\/p>\n<\/td>\n \n = $300,000<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Variable cost S&D<\/span><\/i><\/p>\n<\/td>\n \n = $100,000<\/u><\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Total<\/span><\/i><\/p>\n<\/td>\n \n = $400,000<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n VCPU = $400,000 \u00f720,000 units<\/span><\/i><\/p>\n<\/td>\n \n = $20<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n <\/p>\n \u00a0<\/td>\n \u00a0<\/td>\n \u00a0<\/td>\n \u00a0<\/td>\n \u00a0<\/td>\n<\/tr>\n <\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/i><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7<\/span> SPPU<\/span><\/p>\n = ($30 \u2013 $20) \u00f7<\/span> $30<\/span><\/p>\n = 1\/3 or 33.33%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n BEP in Rs<\/span><\/b><\/p>\n = Fixed cost \u00f7<\/span> P\/V ratio <\/span><\/p>\n = $250,000 \u00f7<\/span> 1\/3<\/span><\/p>\n = $750,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales units to earn @ 20% profit on sales value <\/span><\/b><\/p>\n Desire profit \u00a0\u00a0\u00a0 \u00a0= 600,000@20%\u00a0 = $120,000<\/span><\/span><\/i><\/p>\n Contribution \u00a0\u00a0 = Selling price per unit \u2013 Variable cost per unit = $30 \u2013 $20 = $10<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = (Fixed cost + Desired profit) \u00f7 Contribution <\/span><\/p>\n = ($250,000 + $120,000<\/span>) \u00f7 $10<\/span><\/p>\n = $370,000 \u00f7 $10<\/span><\/p>\n = 37,000 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales to earn $100,000 at 50% tax<\/span><\/b><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> P\/V ratio\u00a0 <\/span><\/p>\n = $2,50,000 + [{$1,00,000 \u00f7 (1 \u2013 0.50)] \u00f7<\/span> 1\/3<\/span><\/p>\n = $2,50,000 + $2,00,000 \u00f7<\/span> 1\/3<\/span><\/p>\n = $4,50,000 \u00f7<\/span> 1\/3<\/span><\/p>\n = $13,50,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2062 \u00a0\u00a0\u00a0\u00a0\u00a0 Modified<\/span><\/b><\/p>\n The sales and cost data of AH Company are presented below:<\/span><\/p>\n\n\n\n\n\n\n\n \n \u00a0<\/span><\/p>\n<\/td>\n \n Year I<\/span><\/p>\n<\/td>\n \n Year II<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales unit<\/span><\/p>\n<\/td>\n \n 20,000 units <\/span><\/p>\n<\/td>\n \n 40,000 units <\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales revenue<\/span><\/p>\n<\/td>\n \n 500,000<\/span><\/p>\n<\/td>\n \n 1,000,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Cost of sales:<\/span><\/p>\n<\/td>\n \n 550,000<\/span><\/p>\n<\/td>\n \n 850,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Operating profit<\/span><\/p>\n<\/td>\n \n (50,000)<\/span><\/p>\n<\/td>\n \n 150,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: \u00a0\u00a0\u00a0\u00a0 (1) <\/span>Profit volume ratio; (2) Cost volume ratio; (3) Fixed cost for the year; (3) Break even sales volume;<\/span><\/p>\n (5) Sales volume to earn after tax profit of $150,000. Tax rate 50%<\/span><\/p>\n [Answers: (1) 40%; (2) 60%; (3) $250,000; (4) $625,000; <\/span><\/i><\/p>\n (5) $13,75,000] * C\/V Ratio = 1 \u2013 P\/V Ratio] <\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n = Difference in profit \u00f7<\/span> Difference in sales <\/span><\/p>\n = [$150,000 \u2013 (-50,000)] \u00f7<\/span> ($10,00,000 \u2013 5,00,000)<\/span><\/p>\n = $200,000 \u00f7<\/span> $500,000<\/span><\/p>\n = 0.40 or 40 %\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Cost volume ratio<\/span><\/b><\/p>\n = 1\u2013 P\/V Ratio<\/span><\/p>\n = 1\u2013 0.40<\/span><\/p>\n = 0.60 or 60%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Fixed cost<\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n \n P\/V Ratio<\/span><\/b><\/p>\n<\/td>\n \n = (Fixed cost + Net profit) \u00f7 Sales<\/span><\/b><\/p>\n<\/td>\n<\/tr>\n \n 40%<\/span><\/p>\n<\/td>\n \n = (Fixed cost + $1,50,000) \u00f7 $10,00,000\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n \n FC + $1,50,000<\/span><\/p>\n<\/td>\n \n = $10,00,000 \u00d7 40% <\/span><\/p>\n<\/td>\n<\/tr>\n \n FC + $1,50,000<\/span><\/p>\n<\/td>\n \n = $4,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/p>\n<\/td>\n \n = $4,00,000 \u2013 150,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $2,50,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0 <\/span><\/p>\n BEP in amount<\/span><\/b><\/p>\n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n = $250,000 \u00f7 0.40<\/span><\/p>\n = $625,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales to earn profit $150,000 at 50% tax<\/span><\/b><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> P\/V ratio\u00a0 <\/span><\/p>\n = $2,50,000 + [{$1,50,000 \u00f7 (1 \u2013 0.50)] \u00f7<\/span> 0.40<\/span><\/p>\n = $2,50,000 + $3,00,000 \u00f7<\/span> 0.40<\/span><\/p>\n = $5,50,000 \u00f7<\/span> 0.40<\/span><\/p>\n = $13,70,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2063 \u00a0\u00a0\u00a0\u00a0\u00a0 Modified<\/span><\/b><\/p>\n AG Company sells its energy base product to wholesale supermarket for $45 per price in which it incurred $20 as variable cost. The annual fixed costs of company amount to $100,000.<\/span><\/p>\n Required<\/span>: (1) Profit volume ratio; (2) Determine the BEP sales units; <\/span><\/p>\n (3) Determine the rupee sales volume required to earn profit of $120,000<\/span><\/p>\n (4) Determine the sales volume in units to earn 20% return on sales<\/span><\/p>\n (5) If the company can sell 5,500 units of its product, what price would it have to charge to earn $120,000 profit?\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n [Answer: (1) 5\/9; (2) 4,000 units; (3) $396,000; <\/span><\/i><\/p>\n (4) 6250 units; (5) SPPU = $60]<\/span><\/i><\/p>\n SOLUTION<\/span><\/b><\/p>\n Profit volume ratio\u00a0 <\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7 SPPU <\/span><\/p>\n = ($45 \u2013 $20) \u00f7 $45<\/span><\/p>\n = $25 \u00f7 $45<\/span><\/p>\n = 5\/9 or 55.60%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Determine BEP sales units<\/span><\/b><\/p>\n = Fixed cost \u00f7 (SPPU \u2013 VCPU)<\/span><\/p>\n = $100,000 \u00f7 ($45 \u2013 $20)<\/span><\/p>\n = $100,000 \u00f7 $25<\/span><\/p>\n = 4,000 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales required earning profit $120,000<\/span><\/b><\/p>\n = (Fixed cost + Desire profit) \u00f7 P\/V ratio <\/span><\/p>\n = ($100,000 + $120,000) \u00f7 5\/9<\/span><\/p>\n = $220,000 \u00f7 5\/9<\/span><\/p>\n = $396,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales units to earn 20% profit on sales (20% of SPPU)<\/span><\/b><\/p>\n Profit = $45 \u00d7 20% = $9 <\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = Fixed cost \u00f7<\/span> (SPPU \u2013 VCPU \u2013 Profit per unit <\/span><\/p>\n = $100,000 \u00f7<\/span> ($45 \u2013 $20 \u2013 $9) <\/span><\/p>\n = $100,000 \u00f7 $16<\/span><\/p>\n = 6,250 units<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Company sells 5,500 units to earn $120,000; selling price per unit (SPPU)<\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n\n\n\n \n Sales units<\/span><\/p>\n<\/td>\n \n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU) \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 units<\/span><\/p>\n<\/td>\n \n = ($100,000 + $120,000) \u00f7<\/span> (SPPU \u2013 $20)<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 units<\/span><\/p>\n<\/td>\n \n = $220,000 \u00f7<\/span> (SPPU \u2013 $20)<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 units\u00a0\u00a0 (SPPU \u2013 $20)<\/span><\/p>\n<\/td>\n \n = $220,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 x SPPU \u2013 $110,000<\/span><\/p>\n<\/td>\n \n = $220,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 x SPPU<\/span><\/p>\n<\/td>\n \n = $220,000 + $110,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,500 x SPPU<\/span><\/p>\n<\/td>\n \n = $330,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n SPPU<\/span><\/p>\n<\/td>\n \n = $330,000 \u00f7 5,500 units<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $60 <\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2064\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 Modified<\/span><\/b><\/p>\n AF Company sells its product at $20 per unit in which it incurred variable cost of $7.60 per unit. The annual fixed costs of company amounted to $49,600.<\/span><\/p>\n Required:<\/span> (a) Profit volume ratio; (2) Sales unit to earn after tax profit of $30,000 if tax rate is 45%<\/span><\/p>\n (3) Compute BEP value assuming that fixed cost will increase by 20%.<\/span><\/p>\n (4) Compute the contribution margin ratio assuming that variable cost is reduced to $7.50 per unit.<\/span><\/p>\n (5) If the company can sell 5,200 units what price would it have to charge to earn a profit of $18,000 ?<\/span><\/p>\n [Answers: (1) 62%; (2) 8,399 units; (3) $96,000; (4) 62.50%; (5) $20.58]<\/span><\/i><\/p>\n SOLUTION<\/span><\/b><\/p>\n Profit volume ratio\u00a0 <\/span><\/b><\/p>\n = 1 \u2013 (VCPU \u00f7 SPPU) \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = 1 \u2013 ($7.60 \u00f7 $20)<\/span><\/p>\n = 0.62 or 62%<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales units after tax @ 30% to earn profit $30,000<\/span><\/b><\/p>\n Contribution = SPPU \u2013 VCPU = $20 \u2013 7.60 = $12.40<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> Contribution <\/span><\/p>\n = $49,600 + [{$30,000 \u00f7 (1 \u2013 0.45)] \u00f7<\/span> $12.40<\/span><\/p>\n = $49,600 + $54,545 \u00f7<\/span> $12.40<\/span><\/p>\n = $104,145 \u00f7<\/span> $12.40<\/span><\/p>\n = $13,70,000<\/span><\/p>\n = 8,399 units approx.<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n \u00a0<\/span><\/p>\n BEP in amount with revised fixed cost <\/span><\/b><\/p>\n Revised fixed cost \u00a0 = $49,600 + $49,600@20% = $59,520<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n = Revised fixed cost \u00f7 P\/V ratio<\/span><\/p>\n = $59,520 \u00f7 0.62<\/span><\/p>\n = $96,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Revised contribution margin ratio (P\/V Ratio) if VCPU is $7.50\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b><\/p>\n = 1 \u2013 Revised VCPU \u00f7 SPPU<\/span><\/p>\n = 1 \u2013 $7.50 \u00f7 $20<\/span><\/p>\n = 1 \u2013 0.375<\/span><\/p>\n = 0.625 or 62.5%\u00a0\u00a0 <\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Revised SPPU unit to earn profit $18,000 if sales units are 5,200\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n\n\n\n \n Sales units<\/span><\/p>\n<\/td>\n \n = (Fixed cost + Desired profit) \u00f7<\/span> (SPPU \u2013 VCPU) \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 units<\/span><\/p>\n<\/td>\n \n = ($49,600 + $18,000) \u00f7<\/span> (SPPU \u2013 $7.6)<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 units<\/span><\/p>\n<\/td>\n \n = $67,600 \u00f7<\/span> (SPPU \u2013 $7.6)<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 units\u00a0\u00a0 (SPPU \u2013 $7.6)<\/span><\/p>\n<\/td>\n \n = $67,600<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 x SPPU \u2013 $39,520<\/span><\/p>\n<\/td>\n \n = $67,600<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 x SPPU<\/span><\/p>\n<\/td>\n \n = $67,500 + $39,520<\/span><\/p>\n<\/td>\n<\/tr>\n \n 5,200 x SPPU<\/span><\/p>\n<\/td>\n \n = $107,020<\/span><\/p>\n<\/td>\n<\/tr>\n \n SPPU<\/span><\/p>\n<\/td>\n \n = $107,020 \u00f7 5,200 units<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $20.58\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2065\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b>Modified<\/span><\/b><\/b><\/p>\n The accountant of AD Company made available the following information:<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0 Annual fixed cost $90,000<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0 Materials cost per kg is $3 and 7 kg of input materials is consumed by one unit of output <\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0 Each unit needs 4 DLH and wages per hour is $4<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0 The variable overhead is 50% of direct labour cost<\/span><\/p>\n \u00a0\u00a0\u00a0\u00a0 The sales price per unit is $60<\/span><\/p>\n Required: (1) P\/V Ratio; (2) BEP in rupees; (3) Sales units to realize $3 per unit profit <\/span><\/p>\n (4) Sales in rupees to realize after tax profit of $36,000 at a tax rate 40%<\/span><\/p>\n [Answer: (1) 25%; (2) $360,000; (3) 7,500 units; (4) $600,000]<\/span><\/i><\/p>\n * VCPU = 7×3 + 4×4 + 4×4@50% = $45]<\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/p>\n Given and working note: <\/span><\/p>\n\n\n\n\n\n\n\n\n\n \n Fixed cost<\/span><\/i><\/p>\n<\/td>\n \n = $90,000<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n Variable cost<\/span><\/i><\/p>\n<\/td>\n \n = Materials + Direct labour + Overhead <\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n = 7 kg x $3 \u00a0 + 4 DLH x $4\u00a0\u00a0\u00a0 + (4 DLH x $4 @ 50%)<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n = 21 + 16 + 8<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n = $45<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/p>\n<\/td>\n<\/tr>\n \n Selling price per unit (SPPU) = $60<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Profit volume ratio <\/span><\/b><\/p>\n = (SPPU \u2013 VCPU) \u00f7 SPPU <\/span><\/p>\n = ($60 \u2013 $45) \u00f7 $60\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = 0.25 or 25%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n BEP in amount <\/span><\/b><\/p>\n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n = $90,000 \u00f7 0.25<\/span><\/p>\n = $360,000<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Sales units to earn $3 per unit <\/span><\/b><\/p>\n = Fixed cost \u00f7 (SPPU \u2013 VCPU \u2013 Profit per unit)<\/span><\/p>\n = $90,000 \u00f7 ($60 \u2013 $45 \u2013 $3)<\/span><\/p>\n = $90,000 \u00f7 $12 \u00a0\u00a0<\/span><\/p>\n = 7,500 units<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales to earn profit $36,000 at 40% tax<\/span><\/b><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> P\/V ratio\u00a0 <\/span><\/p>\n = $90,000 + [{$36,000 \u00f7 (1 \u2013 0.40)] \u00f7<\/span> 0.25<\/span><\/p>\n = $90,000 + $60,000 \u00f7<\/span> 0.25<\/span><\/p>\n = $150,000 \u00f7<\/span> 0.25<\/span><\/p>\n = $600,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2066\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b>Modified<\/span><\/b><\/b><\/p>\n AS Company provides the following trading result:<\/span><\/p>\n\n\n\n\n\n \n Year <\/span><\/p>\n<\/td>\n \n Sales amount<\/span><\/p>\n<\/td>\n \n Total cost<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Y1<\/span><\/p>\n<\/td>\n \n $2,00,000<\/span><\/p>\n<\/td>\n \n $1,60,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Y2<\/span><\/p>\n<\/td>\n \n $2,40,000<\/span><\/p>\n<\/td>\n \n $1,80,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (1) Profit volume ratio; (2) Annual fixed overhead; (3) Margin of safety for year 1 and year 2; <\/span><\/p>\n (4) Sales to earn a profit of $80,000<\/span><\/p>\n [Answer: (1) 0.50 or 50%; (2) $60,000; <\/span><\/i><\/p>\n (3) $80,000 and $120,000; (4) $280,000]<\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/p>\n Given and working note:\u00a0 <\/span><\/i><\/p>\n\n\n\n\n\n\n \n Year<\/span><\/i><\/p>\n<\/td>\n \n Sales amount<\/span><\/i><\/p>\n<\/td>\n \n Total cost = VC + FC<\/span><\/i><\/p>\n<\/td>\n \n Profit = Sales \u2013 TC<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n 1<\/span><\/i><\/p>\n<\/td>\n \n $200,000<\/span><\/i><\/p>\n<\/td>\n \n $160,000<\/span><\/i><\/p>\n<\/td>\n \n $40,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n 2<\/span><\/i><\/p>\n<\/td>\n \n $240,000<\/span><\/i><\/p>\n<\/td>\n \n $180,000<\/span><\/i><\/p>\n<\/td>\n \n $60,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n \n Different<\/span><\/i><\/p>\n<\/td>\n \n $40,000<\/span><\/i><\/p>\n<\/td>\n \n \u00a0<\/span><\/i><\/p>\n<\/td>\n \n $20,000<\/span><\/i><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Profit volume ratio (P\/V Ratio)<\/span><\/b><\/p>\n = Different in profit \u00f7 Different in sales<\/span><\/p>\n = $20,000 \u00f7 $40,000<\/span><\/p>\n = 0.5 or 50%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Annual fixed overhead <\/span><\/b><\/p>\n\n\n\n\n\n\n\n\n \n Sales<\/span><\/p>\n<\/td>\n \n = (Fixed cost + Profit) \u00f7 P\/V ratio\u00a0 <\/span><\/p>\n<\/td>\n<\/tr>\n \n $200,000<\/span><\/p>\n<\/td>\n \n = (Fixed + $40,000) \u00f7 0.50\u00a0 \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 [base year 1]<\/span><\/p>\n<\/td>\n<\/tr>\n \n 0.50 ($200,000)<\/span><\/p>\n<\/td>\n \n = (Fixed + $40,000)<\/span><\/p>\n<\/td>\n<\/tr>\n \n $100,000<\/span><\/p>\n<\/td>\n \n = (Fixed + $40,000)<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/p>\n<\/td>\n \n = $100,000 \u2212 $40,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n \u00a0<\/span><\/p>\n<\/td>\n \n = $60,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Margin of safety for year 1 and year 2 (MOS)<\/span><\/b><\/p>\n Margin of safety\u00a0\u00a0\u00a0\u00a0 = Profit \u00f7 P\/V ratio <\/span><\/p>\n For year 1\u00a0\u00a0\u00a0\u00a0 = $40,000 \u00f7 0.50 \u00a0 = $80,000<\/span><\/p>\n For year 2\u00a0\u00a0\u00a0\u00a0 = $40,000 \u00f7 0.50\u00a0\u00a0 = $120,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Sales to earn a profit of $80,000<\/span><\/b><\/p>\n = (Fixed cost + Desired profit) \u00f7 P\/V ratio\u00a0 <\/span><\/p>\n = ($60,000 + $80,000) \u00f7 0.50<\/span><\/p>\n = $140,000 \u00f7 0.50<\/span><\/p>\n = $280,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n TU: 2067\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/b>Modified<\/span><\/b><\/b><\/p>\n The following extracted information is given to you AB Company: <\/span><\/p>\n\n\n\n\n\n\n\n\n \n Particulars <\/span><\/p>\n<\/td>\n \n Amount<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales revenue <\/span><\/p>\n<\/td>\n \n 100,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Variable cost <\/span><\/p>\n<\/td>\n \n 60,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Contribution<\/span><\/p>\n<\/td>\n \n 40,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Less: Fixed cost <\/span><\/p>\n<\/td>\n \n 30,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Net income or profit <\/span><\/p>\n<\/td>\n \n 10,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (1) P\/V ratio; (2) BEP in Rs; (3) Margin of safety; (4) Required sales for after tax earnings $25,000 if tax rate is 40% <\/span><\/p>\n \u00a0[Answer: (1) 40%; (2) $75,000; (3) $25,000; (4) $179,168;<\/span><\/i><\/p>\n SOLUTION <\/span><\/b><\/p>\n Profit volume ratio (P\/V Ratio)<\/span><\/b><\/p>\n = (Sales \u2013 Variable cost) \u00f7 Sales<\/span><\/p>\n = ($100,000 \u2013 $60,000) \u00f7 $100,000<\/span><\/p>\n = $40,000 \u00f7 $100,000<\/span><\/p>\n = 0.40 or 40%<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n BEP in amount <\/span><\/b><\/p>\n = Fixed cost \u00f7 P\/V ratio <\/span><\/p>\n = $30,000 \u00f7 0.40<\/span><\/p>\n = $75,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n Margin of safety (MOS)<\/span><\/b> \u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0 <\/span><\/p>\n = Profit \u00f7 P\/V ratio <\/span><\/p>\n = $10,000 \u00f7 0.40<\/span><\/p>\n = $25,000<\/span><\/p>\n \u00a0<\/span><\/p>\n \u00a0<\/span><\/p>\n If profit earned $25,000 after tax 40%, find out sales<\/span><\/b><\/p>\n = Fixed cost + [Desired profit after tax \u00f7 (1 \u2013 Tax)] \u00f7<\/span> P\/V ratio\u00a0 <\/span><\/p>\n = $30,000 + [{$25,000 \u00f7 (1 \u2013 0.40)] \u00f7<\/span> 0.40<\/span><\/p>\n = $30,000 + $41,667 \u00f7<\/span> 0.40<\/span><\/p>\n = $71,667 \u00f7<\/span> 0.40<\/span><\/p>\n = $179,168<\/span><\/p>\n \u00a0<\/span><\/span><\/p>\n \u00a0<\/span><\/span><\/p>\n #####<\/span><\/p>\n\n\n\n \n Problems\u00a0 and\u00a0 Answers\u00a0 of\u00a0 Cost Volume Profit & Break-even Analysis <\/span><\/b><\/h3>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \u00a0<\/span><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2A<\/span><\/b><\/p>\n The following extracted information is given to you EP Company:<\/span><\/p>\n\n\n\n\n\n \n Years <\/span><\/p>\n<\/td>\n \n Sale amount <\/span><\/p>\n<\/td>\n \n Profit amount <\/span><\/p>\n<\/td>\n<\/tr>\n \n 2020<\/span><\/p>\n<\/td>\n \n $14,00,000<\/span><\/p>\n<\/td>\n \n $1,50,000<\/span><\/p>\n<\/td>\n<\/tr>\n \n 2021<\/span><\/p>\n<\/td>\n \n $16,00,000<\/span><\/p>\n<\/td>\n \n $2,00,000<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (1) P\/V Ratio; (2) Fixed cost for the period; (3) Variable cost for the year 2015<\/span><\/span><\/p>\n (4) Sales amount to earn $300,000 profit before tax; (5) If profit earned $175,000 after tax 30%, find out sales<\/span><\/p>\n [Answer: (1) 25%; (2) $200,000; (3) $12,00,000; <\/span><\/i><\/p>\n (4) $20,00,000; (5) $18,00,000]<\/span><\/i><\/p>\n PROBLEM: 2B<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n XYZ Manufacturing Company has following data:<\/span><\/p>\n Selling price per unit (SPPU) $90<\/span><\/p>\n Variable cost per unit (VCPU) $54<\/span><\/p>\n Fixed cost $400,000<\/span><\/p>\n Required: (calculate nearest units and rupees): (a) Profit volume ratio; (b) BEP in units and rupees; <\/span><\/p>\n (c) Determine rupee sales volume required to earn profit of $200,000 <\/span><\/p>\n (d) Determine the sales volume in units to earn 20% return on sales price per unit <\/span><\/p>\n (e) If sales is $20,00,000 find out profit <\/span><\/p>\n \u00a0[Answer: (a) 40%; (b) 11,111 units approx and $9,99,990; <\/i><\/span><\/p>\n (c) $15,00,000; (d) 22,222 units approx; (e) $400,000;<\/span><\/i><\/p>\n * Sales units = FC \u00f7 (SPPU \u2013 VCPU \u2013 Profit per unit) <\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2C<\/span><\/b><\/p>\n The following data relates to ABC Manufacturing Company:<\/span><\/p>\n\n\n\n\n\n\n\n\n\n \n Cost per unit:\u00a0 <\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Materials<\/span><\/p>\n<\/td>\n \n $90<\/span><\/p>\n<\/td>\n<\/tr>\n \n Labour<\/span><\/p>\n<\/td>\n \n $45<\/span><\/p>\n<\/td>\n<\/tr>\n \n Variable overheads<\/span><\/p>\n<\/td>\n \n $15<\/span><\/p>\n<\/td>\n<\/tr>\n \n Selling price per unit<\/span><\/p>\n<\/td>\n \n $200<\/span><\/p>\n<\/td>\n<\/tr>\n \n Fixed cost<\/span><\/p>\n<\/td>\n \n $135,200<\/span><\/p>\n<\/td>\n<\/tr>\n \n Units sold during the year<\/span><\/p>\n<\/td>\n \n 8,000 units <\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Find out: (a) P\/V Ratio; (b) Break-even point in units; (c) Break-even point in rupees; (d) Break-even ratio<\/span><\/p>\n [Answer: P\/V Ratio = 25%; BEP units = 2,704 units; <\/span><\/i><\/p>\n BEP $= $540,800; BEP Ratio = 33.8%]<\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2D<\/span><\/b><\/p>\n The following data are obtained from the records of ABC Company:<\/span><\/p>\n\n\n\n\n\n \n Particulars<\/span><\/p>\n<\/td>\n \n First year<\/span><\/p>\n<\/td>\n \n Second year<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Sales<\/span><\/p>\n<\/td>\n \n $800,000<\/span><\/p>\n<\/td>\n \n $900,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n \n Profit<\/span><\/p>\n<\/td>\n \n $100,000<\/span><\/p>\n<\/td>\n \n $140,000<\/span><\/p>\n<\/td>\n \n \u00a0<\/span><\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n Required: (a) P\/V Ratio; (b) Fixed cost; (c) Break-even-point; (d) Required sales in rupees for earn profit $180,000. <\/span><\/p>\n (d) Find out the profit if sales amount is $15,00,000.<\/span><\/p>\n [Answer:\u00a0 P\/V Ratio = 40%; Fixed cost = $220,000; BEP = $550,000; <\/span><\/i><\/p>\n Sales = $10,00,000; Profit = $380,000]<\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n Here, Amount = Rs = $ = \u00a3 = \u20ac = <\/span>\u20b9<\/span> = Af = <\/span>\u09f3 <\/span>= Nu = Rf = <\/span>\u0dbb\u0dd4<\/span> = Br = P = Birr = Currency of your country<\/span>\u00a0 <\/span><\/p>\n PROBLEM: 2E<\/span><\/b><\/p>\n Himalayan Chemicals (P) Ltd manufactures washing shop. Its fixed cost has been budgeted for period is $1,80,000. The company expects to earn $60,000 profit. The variable cost per unit is $6 and profit-volume ratio is 0.6<\/span><\/p>\n Required: (a) Selling price per unit; (b) Break-even point in units; (c) Amount of sales made during the year.<\/span><\/p>\n (d) Required sales for earning $60,000 profit after VAT, if VAT rate is 13%.<\/span><\/p>\n [Answer:\u00a0 (a) $15; (b) 20,000 units; (c) $4,00,000; (d) $414,943]<\/span><\/i><\/p>\n \u00a0<\/span><\/b><\/p>\n EP <\/span>Online <\/span>Study <\/span><\/p>\n Thank you for investing your time.<\/span><\/i><\/p>\n Please comment on the article.<\/span><\/i><\/p>\n You can help us by sharing this post on your social media platform.<\/span><\/i><\/p>\n \u00a0<\/span><\/p>\n Jay G<\/span>o<\/span>o<\/span>g<\/span>l<\/span>e<\/span>, Jay YouTube<\/span>, Jay Social Media<\/span><\/span><\/p>\n \u091c\u092f<\/span> \u0917\u0942<\/span>\u0917<\/span>\u0932<\/span>.<\/span> \u091c\u092f<\/span> \u092f\u0941\u091f\u094d\u092f\u0941\u092c<\/span>,<\/span> \u091c\u092f<\/span> \u0938\u094b\u0936\u0932<\/span> \u092e\u0940\u0921\u093f\u092f\u093e\u00a0<\/span><\/p>\n  <\/p>\n  <\/p>\n","protected":false},"excerpt":{"rendered":"   \u00a0 Cost Volume Profit Analysis The cost volume profit analysis (CVPA) is also known as breakeven analysis. CVPA determines the\u00a0breakeven point\u00a0for different\u00a0sales\u00a0volumes and cost structures. It can be useful for managers for making short-term business decisions. \u00a0 CVPA makes several assumptions; sales price,\u00a0fixed cost and variable cost\u00a0per unit are constant in CVPA. CVPA also […]<\/p>\n","protected":false},"author":19997,"featured_media":6084,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2306,3124,11],"tags":[3148,3144,3141,3143,3142,3147,3149,3126,3145,3146],"writers":[144],"yoast_head":"\n