1. X Ltd. Made sales during a certain period for Rs. 1,00,000.
The net profit for the same
period was Rs. 10,000 and the fixed overheads were Rs. 15,000.
Find out:
(i) P/V Ratio.
(ii) Required sales to earn a profit of Rs. 15,000.
(iii) Net Profit from sales of Rs. 1,50,000.
(iv) Break even point sales.
2. DB Ltd furnished the following information:
Particulars 2004-2005 2005-2006
Sales (₹ 10/ 2,00,000 2,50,000
unit)
Profit 30,000 50,000
You are required to compute:
(a) P/V Ratio.
(b) Break-even point.
(c) Total variable cost for 2004-2005 & 2005-2006.
(d) Sales required to earn a profit of ₹60,000.
(e) Profit/Loss when sales are ₹1,00,000.
(f) Margin of Safety when Profit is ₹80,000.
(g) During 2006-2007, due to increase in cost, variable cost is expected to rise to ₹7/unit
and fixed cost to ₹55,000. If selling price can not be increased, what will be the amount
of sales to maintain the profit of 2005-2006?
3. Rainbow Ltd. Sold goods for ₹ 30,00,000 in a year. In that year, the
variable cost is 60% of sales and profit is ₹ 8,00,000.
Find out: (i) P/V Ratio, (ii) Fixed Cost, (iii) Break-even sales, (iv) Break-even
sales if selling price was reduced by 10% and fixed costs were increased by
₹ 1,00,000.
4. A company produces single product which sells for ` 20 per unit.
Variable cost is ` 15 per unit and Fixed overhead for the year is `
6,30,000.
Required:
Calculate sales value needed to earn a profit of 10% on sales.
Calculate sales price per unit to bring BEP down to 1,20,000 units.
Calculate margin of safety sales if profit is ` 60,000.
5. A company has fixed cost of ` 90,000, Sales ` 3,00,000 and Profit of `
60,000. Required:
Sales volume if in the next period, the company suffered a loss of `
30,000.
What is the margin of safety for a profit of ` 90,000?
6. The following figures are related to LM Limited for the year ending
31st March, 2014 : Sales - 24,000 units @ ` 200 per unit;
P/V Ratio 25% and Break-even Point 50% of sales. You are required to
calculate:
Fixed cost for the year
Profit earned for the year
Units to be sold to earn a target net profit of ` 11,00,000 for a year.
Number of units to be sold to earn a net income of 25% on cost.
Selling price per unit if Break-even Point is to be brought down by
4,000 units.
7. Arnav Ltd. manufacture and sales its product R-9. The following figures have
been collected from cost records of last year for the product R-9:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of Cost of Goods --
Sold
Direct Labour 15% of Cost of Goods --
Sold
Factory Overhead 10% of Cost of Goods ` 2,30,000
Sold
General & Administration Overhead 2% of Cost of Goods ` 71,000
Sold
Selling & Distribution Overhead 4% of Cost of Sales ` 68,000
Last Year 5,000 units were sold at `185 per unit. From the given data find the
followings:
(a) Break-even Sales(in rupees)
(b) Profit earned during last year
(c) Margin of safety (in %)
(d) Profit if the sales were 10% less than the actual sales.
8. The P/V Ratio of Delta Ltd. is 50% and margin of safety is 40%. The company
sold 500 units for Rs. 5,00,000. You are required to calculate:
● Break- even point, and
● Sales in units to earn a profit of 10% on sales
Solution:
(i) P/V Ratio - 50%
Margin of Safety - 40%
Sales 500 Units for `
5,00,000
Selling price per Unit - ` 1,000
Calculation of Break Even
Point (BEP)
Margin of Safety Ratio = Sales −
BEP ×100
40 =
Sales
5,00,000 − BEP 100
×
5,00,000
BEP (in sales) = ` 3,00,000
BEP (in Unit) = ` 3,00,000 ÷ ` 1,000 = 300 Units
(ii) Sales in units to earn a profit of 10 % on sales
Sales = Fixed Cost + Desired
Pr ofit P/
VRatio
Let the Sales be x
Profit = 10% of x i.e. 0.1 x
Thus -
⎜ ⎟
x = ⎛ 1,50,0500%+0.1X ⎞
⎝ ⎠
Or, x = ` 3,75,000
To find out sales in units amount of sales ` 3,75,000 is to be divided by
Selling Price per unit Thus -
`3,75,000 = 375 Units
Sales (in units )
`1,000
=
Working Notes
1. Selling price = ` 5,00,000 ÷ ` 500 = ` 1,000 per unit
2. Variable cost per unit = Selling Price - (Selling Price × P/V Ratio)
= `1,000 – (` 1,000 x 50%) = ` 500
3. Profit at present level of sales
Profit
Margin of Safety = P/ V Ratio
Margin of Safety = 40% of ` 5,00,000 = ` 2,00,000
Pr ofit
` 2,00,000 = 50%
Profit = ` 1,00,000
4. Fixed Cost = (Sales x P/V Ratio) – Profit
= (`5,00,000 x 50%) – ` 1,00,000 = `1,50,000