Problems of Cost Volume Profit Analysis

Q.1 The executives of Samson Company are developing the annual profit plan. The effect on budgeted profit of several
contemplated decisions is being assessed. Some of these decisions will affect fixed costs, other will affect variable costs
and still others relate to sales price and sales volume (number of units). The profit goal set by the management is $ 25,000.
The following preliminary income statement data (summarized) have been developed as under:
Sales at $ 20 per unit $
100,000
Costs:
Fixed $ 49,600
Variable $ 38,000 $ 87,600
Profit $ 12,400
Required: (Each alternative is independent and assume no change in units unless specifically stated otherwise)
a. Compute planned contribution margin, profit and break even point based on the preliminary plan.
b. Compute the planned contribution margin, profit and break even point assuming management makes a decision that will cause
fixed cost to increase 10 percent.
c. Compute planned contribution margin, profit and break even point assuming instead that the decision will cause only variable
costs to increase 10 percent.
d. Compute planned contribution margin, profit and break even point assuming a decision made to increase the sales price by 10
percent.
e. Compute planned contribution margin, profit and breakeven point assuming the planned sales volume (units) is increased by 10
percent.
f. There is possibility that all the above alternatives will be included in the final profit plan that is, a 10 percent increase in fixed costs,
a 10 percent increase in variable costs, a 10 percent increase in sales price and a 10 percent increase in sales units. Compute the
budgeted contribution margin profit and break even point considering the combined effect of these four changes.
g. How many units would have to be sold under requirement 6 to exactly meet the profit goal?
Q.2 From the following data, calculate (a) Break even Point expressed in amount of sales in rupees (b) Number of units that must be
sold to earn a profit of Rs. 60,000 per year
Sales price Rs. 20 per unit
Variable Manufacturing cost Rs. 11 per unit
Variable selling cost Rs. 3 per unit
Fixed Factory overhead Rs. 5,40,000 per year
Fixed Selling cost Rs. 252,000 per year
Q. 3 S. Ltd. a multi-product furnished the following data relating the year 2002:
Year 1 (Rs.) Year 2 (Rs.)
Sales 45,000 50,000
Total cost 40,000 43,000
Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two year periods.
Required:
a. The profit volume ratio
b. The fixed expenses
c. The break even sales and
d. The percentage of margin of safety to total sales
Q.4 The Luxom Company produces a single product. Fixed costs have been budgeted for a normal range of operation of 160,000 to
200,000 units per year. Seldom is there any significant change in inventories. Net income at the high and low points of the normal range
has been budgeted as follows:
Units 160,000 200,000
Sales Revenues $80,000 $100,000
Cost of sales and expense $78,000 $90,000
Net Income $2,000 $10,000
Required:
a. Determine the following:
b. The contribution margin per unit.
c. The fixed cost per year.
d. The break-even point in units.
e. Profit budgeted for 180,000 units
Q.5 An income statement of a company is given below:
Sales revenue 500,000
Less: Variable costs 300,000
Contribution margin 200,000
Less: Fixed costs 100,000
Net Income 100,000
Required:
a) Cost volume ratio
b) Profit volume ratio
c) BE sales volume

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 d) Margin of safety and margin of safety ratio
Q.6 Following particulars are available in respect of cost and revenue data of ‘X’ Ltd.:
Installed capacity 20,000 units
Selling price per unit Rs. 75
Variable cost per unit Rs. 50
Fixed costs Rs. 220,000 (including Rs. 20,000 for dep.)
The company has been sanctioned a term loan of Rs. 350,000 and the installment including interest in the first year is to be Rs.
100,000. It is expected that this loan will increase the production capacity Rs. 25,000 units. Calculate:
Required: (a) Break even Point in units
(b) Cash Break even point in units and in terms of capacity
Q. 7 The Ralph Company has annual fixed costs of $120,000. In 19x2 sales amounted to $600,000 as compared with $450,000 in
19x1, and profit for 19x2 was $50,000 higher than in 19x1.
Required:
a) If there is no need to expand the company’s capacity, what should profits be in 19x3 on a forecast sales volume of
$900,000?
b) At what dollar volume does Ralph Company break even?
Q 8 The Frosty-Dip Ice Cream Company operates a chain of drive-ins selling only ice-cream products. The company is considering
opening a new drive-in stand at a desirable location. The following data pertain to the typical stand:
Average selling price per gallon of ice-cream $ 2.56
Variable costs per gallon:
Ice-cream $ 1.34
Supplies (cups, cones, toppings, etc) $ 0.58
Total unit variable costs $ 1.92
Fixed costs per month:
Rent $ 400
Utilities $ 120
Wages (including fringe costs) of employees $ 1,330
Manager’s base salary $ 400
Other fixed costs $ 150
Total fixed costs $ 2,400
Required: Develop the basis for a decision to open a new drive-in. Consider each of the following separately, based on the above set of
data:
a. What is the monthly break-even point, expressed both in gallons of ice-creams and in dollars of sale?
b. If the rent were increased to $1,200 per month, what would be the new break-even point in dollars and gallons?
c. If the cost of ice-cream increased to $1.66, what would be the new break-even point in dollars and gallons?
d. If the manager were to be paid a commission of 2 cents per gallon for each gallon sold beyond the break-even point, what
profit would the stand earn at a volume of 15,000 gallons?
Q. 9 The Wilnot Company needs a machine with the capacity to produce 200,000 units of a particular product. Two equipment suppliers
have submitted bids. The Do-all machine will generate $80,000 Fixed cost per year; but if the capacity of 200,000 units is reached, profit
for this product will amount to $80,000. The Do-some machine will have a fixed cost of only $51,000 per year and will yield a profit of
$69,000 at 200,000 units. The product is priced at $2 per unit.
Required:
a. Determine the break-even point for each machine in sales dollars.
b. Determine the sales volume at which the two machines produce equal profit.
c. Determine the range of sales dollars in which (1) Do-all is more profitable than Do-some (2) Do-some is more profitable than
Do-All.
Q.10 Company A and Company B, both under the same management, make and sell the same type of product. Their budgeted profit
and loss account for January–June for the coming year are as under:
Particulars Company A Company B
Sales revenues Rs. 300,000 Rs. 300,000
Less: Variable costs Rs. 240,000 Rs. 200,000
Fixed costs 30,000 270,000 70,000 270,000
Profit Rs. 30,000 Rs. 30,000
You are required to
a. Calculate the break even point for each company.
b. Calculate the sales volumes at which each of the two companies will make a profit of Rs. 10,000.
c. Assess how their profitability will change with change in sales volume.
Q.11 All-Day Candy Company is a wholesale distributor of candy. The company services grocery, convenience and drug stores in a
large metropolitan area. Small but steady growth in sales has been achieved by the company over the few past years while candy
prices have been increasing. The company is formulating its plans for the coming fiscal year. Presented below are the data used to
project the current years after tax net income of $110,400.

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Amount selling price per box $4.00
Average variable costs per box:
Cost of candy $2.00
Selling expenses $0.40
$2.40
Average fixed costs:
Selling $160,000
Administrative $280,000
$440,000
Expected annual sales $1,560,000
Tax rate 40%
Manufacturers of candy have announced that they will increase prices of their products and average of 15% in the coming year due to
increases in raw material and labour costs. All-Day Candy Company expects that all other costs will remain at the same rates or levels as
the current year.
Required:
a. Show how the projected after-tax net income of $110,400 was computed.
b. What is the company’s break-even point in units for the current year?
c. What volume of sales in dollars must the company achieve in the coming year to maintain the same net income after taxes as
projected for the current year if the selling price of candy remains at $4.00 per box and the cost of candy increases 15%?
Q12. Freedom, Inc., management has performed cost studies and projected the following annual cost based on 40,000 units of
production and sales:
Total Annual Costs Percent of annual variable costs

Direct material $400,000 100

Direct labour $360,000 75
Manufacturing overheads $300,000 40
Selling, General, and Administrative expenses $200,000 25

Required:
a. Compute Freedom’s unit selling price that will yield a projected 10% profit on sales of 40,000 units.
b. Assume that management selects a selling price of $30 per unit. Compute the dollar sales volume that wall yield a projected
10% profit on sales

Q.13 Liza Fletcher, president of Gamma Delta Iota Honor Society, is making plans for a gala dinner dance
To be held at a local country club. She is trying to decide on the price to ask for the tickets. Each ticket will admit one
couple to the dance, entitle each partner to enjoy buffet supper, and allow all comers to receive certain party favors. Aware
of your reputation on campus, she approaches you for advice and furnishes you with the following information:
Service charge for use of club $900.00
Additional charge per person passing through the buffet serving line $2.25
Fee to be paid Jimmy Bigtime’s Swinging Jazz Ensemble $340.00
Ticket printing charges- Frescoe Press (500 tickets) $38.00
Party favors, per couple (extra favors may be returned for a full refund from the Party Shoppe.) $1.75

Advertisement in newspaper $15.85

Gratuity paid to waitresses 10% of club’s bill
Cost of newsletter sent to society members only $18.65
Required:
a. If the price set is $12 per ticket, how many tickets must be sold to break even on the dance?
b. The society vice president, Glen Williams, has suggested that a floral arrangement must be placed on each of the 72 tables at the
club. Each arrangement will cost $3.00. The overall delivery charge will be $9.50. Glen is certain that, with this added attraction, all
720 seats will be filled. What will the ticket price have to be to enable the society to earn a profit of $100 on the dance under this
alternative assuming that 360 tickets are indeed sold?
Q.14 The Ward Company sold 100,000 units of its products at $20 per unit. Variable costs are $14 per unit (manufacturing costs of $11
and selling costs of $3). Fixed costs are incurred uniformly throughout the year and amount to $792,000 (manufacturing costs of
$500,000 and selling costs of $292,000). There are no beginnings or ending inventories.
Required:
a. The break-even point for this product.
b. The number of units that must be sold to earn an income of $60,000 for the year (before income taxes)
c. The number of units that must be sold to earn an after tax income of $90,000, assuming a tax rate of 40%.
d. The break-even point for this product after a 10% increase in wages and salaries (assuming labour costs are 50% of variable
costs and 20% of fixed costs).
Q.15 TRUEX MANUFACTURING COMPANY
Income Statement For the Year Ended December 31, 19x1

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Sales(100,000 units at $6) $600,000
Variable cost:
Direct Material $190,000
Direct Labour $100,000
Factory overhead $60,000
Total Manufacturing variable cost $350,000
Selling expenses $10,000
Total variable cost $360,000
Contribution Margin $240,000
Fixed Cost:
Factory overhead $100,000
Selling expenses $30,000
Administrative expenses $70,000
Total fixed cost 200,000
Net Profit $40,000
Given:
50% of variable factory overhead is indirect labour. There is additional indirect labour payroll amounting to $20,000 contained in fixed
factory overhead.
The union has negotiated a 10% increase in wage rates for all workers classified as direct and indirect labour, effective January 1, 19x2.
The sales for 19x2 are forecast at the same level as 19x1. No other changes are anticipated for the coming year.
Required:
a. Compute the break-even point for 19x1 in units and in dollars.
b. Prepare a forecast income statement for 19x2, including changes as given. Compute the break-even point for 19x2 in units and in
dollars.
c. What selling price must management set in 19x2 if their goal is to realize the same dollar amount of profit as in 19x1? The same
percentage of profit?
Assume that selling price is to remain at $6 per unit. What sales volume (dollars and units) must be attained if management wishes to
realize the same dollar amount of profit as in 19x1? The same percentage of profit?
Q.16 The president of Beth Corporation, which manufactures tape decks and sells them to producers of sound reproduction systems,
anticipates a 10 percent wage increase to the manufacturing employees (variable labour) on January 1 of next year.
There are no other changes in costs expected. Overhead will not change as a result of the wage increase. The president has asked you
to assist him in developing the information needed to formulate a reasonable product strategy for next year.
You are satisfied by regression analysis that volume is the primary, factor affecting costs and have separated the semi variable costs
into their fixed and variable segments by means of the least squares criterion. You also observe that the beginning ad ending
inventories are never materially different.
Below are the current year data assembled for your analysis:
Current selling price per unit $80
Variable cost per unit:
Material $30
Labour 12
Overhead 6
Total $48
Annual volume of sales 5000 units
Fixed costs $ 51,000
Required:
Provide the following information for the president, using cost-volume-profit analysis:
a. What increase in the selling price is necessary to cover the 10 percent wage increase and still maintain current profit-volume-
cost ratio?
b. How many tape decks must be sold to maintain the current net income if the sales price remains at $80 and the 10 percent
wage increase goes into effect?
c. The president believes that an additional $190000 of machinery (to be depreciated at 10 percent annually) will increase
present capacity (5,300 units) by 30 percent. If all tape decks produced can be sold at the present price and the wage increase
goes into effect, how will the estimated net income before capacity is increased compare with the estimated net income after
capacity is increased? Prepare computations of estimated net income before and after the expansion.
Q.17 A client has recently leased faculties for manufacturing a new product. Based on studies made by his staff, the following data have
been made available to you:
Estimated annual sales 24,000
Estimated costs Amounts per unit
Material $96,000 $4.00
Direct labour 14,400 0.60
Overhead 24,000 1.00
Administrative expenses 28,800 1.20

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 Total $ 163,200 $ 6.80
Selling expenses are expected to be 15% of sales, and profit is expected to amount to $1.02 per unit.
Required:
a. Compute the selling price per unit.
b. Project a profit and loss statement for the year.
c. Compute a break-even point expressed in dollars and in units, assuming that overhead and administrative expenses are
fixed but that other costs are fully variable.
Q.18 Southwest Community college receives grants from, the city and state government and also receives gifts from alumni and
business. Its annual report for 19x3 includes the following statements of Revenues and Expenditures:
Revenues:
Student Tuition $ 1,296,000
Grants $ 400,000
Gifts $ 84,000
Total $ 1,780,000
Expenditures:
Instructional $ 1,198,000
Library $ 275,000
Student Aid $ 108,000
General Administrative $ 227,000
Total $ 1,808,000
Excess of Expenditures over Revenues $28,000
SWCC’s controller believes that one–half of all instructional costs are variable costs based on the number of the students credit hours
and that $110,000 of the library and $127,000 of the general administrative costs are fixed, as are all of the students aid costs. There
were 18,000 students enrolled in 19x3 averaging 6 credit hours each.
Required:
a. Assume that SWCC receives $500,000 in gifts and grants in 19x4 and that student continue to average 6 credit hour each. How
many students must enroll to break even if tuition per credit hour is not changed?
b. Assume that SWCC receives $500,000 in gifts and grants in 19x4 and that student continue to average 6 credit hour each. What
tuition per credit hour must be charged to cause revenues to exceed expenditures by $15,000 if 18,000 students enroll?
c. Assume that SWCC anticipates that gifts and grants will increase by $82,000 over 19x3 levels. What tuition per credit hours must
be charged to break even if 18,000 students enroll, averaging 6 credit hours?
d. Repeat part “c” above assuming that 20,000 students enroll.
e. What would be the excess of revenues over expenditures assuming that 20,000 enroll averaging 5.5 credit hours each? State and
city grants are sent $400,000 and gifts total $112,000. Tuition is set at $12 per hour.
Q.19 A company 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 this two different points of operation has been presented below.
Units sold 30,000 40,000
Sales revenue Rs. 300,000 Rs. 400,000
Cost of goods sold and other expense 300,000 370,000
Profit before tax Nil 30,000
Required:
(a) Which sales volume in unit will bring the company a profit of Rs. 18,000?
(b) If a reduction of 25% in the original sales as required in a is made. By how much the selling price should be increased to put
the company in break even level?
Q.20 At a sales volume of 40,000 units a company made a profit of Rs. 40,000 and at this volume the safety margin ratio would be
25%. Selling price of product was Rs. 10 per unit.
Required:
a. Total fixed cost of the company
b. Break even sales volume in Rs.
c. Sales volume in units to earn after tax profit of Rs. 60,000 (tax rate 20%)
Q.22. The cost volume profit analysis formula of a manufacturing company showed the following position: 20,000  SP = Rs. 160,000 +
Rs. 10  20,000 + Rs. 40,000
Company expects an increase in variable cost by 20%.
Required: Percentage increase in selling price to keep BE Sales volumes at original figure.
Q.23 The Book company published and sold 50000 books. Its income statement for the current year is given below.
Sales revenue 1,250,000
Less: Cost of sales
Prime cost 500,000
Factory overhead (Rs. 100,000 fixed) 250,000 750,000
Gross Profit 500,000
Less: Salaries 100,000
Commission 50,000
Advertising 100,000

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 Royalties (6% of sales ) (25,000 100,000 350,000
fixed)
Net income 150,000
Required:
(a) How many books must be sold in order to achieve break even point?
(b) What is the selling price per book is to be maintained to earn Rs. 200,000 profit?
(c) If the sales commission is discontinued in exchange for additional salaries of Rs. 60,000 how many books would have to be
sold in order to earn same amount of net income.
Q.24 Balaju Auto work company’s income statement for the preceding year is given below:
Sales (100 Auto Riksa) 1,000,000
Variable costs 600,000
Fixed costs 200,000 800,000
EBT 200,000
Less:Taxes 100,000
EAT 100,000
Required:
1. BEP in units and Rs.
2. How many auto Riksas would have to be sold if fixed cost has been increased by Rs. 100,000 for increasing capacity by
60 auto riksas?
3. At what level of sales will the company be able to maintain its present earning before tax after expansion?
4. Suppose the plant operates at full capacity after expansion, what profit will be earned?
Q 25 Following data is available for a product
Variable costs per unit Rs. 5.00
Margin of safety 10,000 units
Total fixed costs Rs. 60,000
Fixed costs per unit Rs. 2.00
Required: Calculate selling price per unit, contribution margin ratio, and break even point in units and in amount, profit or loss at a total
sales volume.
STEP (MOVING) FIXED COST IN CVP ANALYSIS
Q.26 Following information is extracted:
Selling price per unit Rs. 20
Variable cost per unit Rs. 12
Fixed costs:
Depreciation Rs. 80,000
Rent and Rates Rs. 20,000
Repairs Rs. 10,000 for every 5,000 units
Supervision Rs. 10,000 for every 10,000 units
Required:
a. Break even point (in units)
b. Sales units to earn profit of Rs.50,000
Q.27 The contribution margin is 60% and the selling price per unit of the product is Rs. 50. The fixed cost for the year is Rs. 60,000 for
1,500 units. The firm will have to spend Rs. 10,000 for every additional product of 1,000 units.
Required:
(i) Calculate break even point in units.
(ii) Required sales in units to earn Rs. 50,000 profit.
Q.28 A manufacturer of special branded goods has recently installed a machine in its production process. The total cost of running the
machine, the annual production volumes, unit selling price and total sales revenues are presented below:
Production in units 10,000
Sales revenue @ Rs. 10 per unit Rs. 100,000
Less: Variable cost @ Rs. 6 per unit Rs. 60,000
Contribution margin Rs. 40,000
Less: Fixed in total Rs. 50,000
Net income before tax Rs. (10,000)
The company's income statement shows a reported loss of Rs. 10,000 at this installed capacity. If the company ventures to install one
more similar machine to overcome this state of affairs the production units and sales revenue will be double and similarly the total fixed
cost will also increase by the same amount leaving Rs. 20,000 unrecovered. However, the company can utilize some smaller machines
to overcome this difficulty. These machines will produce 1000 units each at the same variable cost per unit and will have fixed cost of
Rs.2000 for each machine.
Required: Which production volume in units and in Rs. would put the total company at break-even point? (Use of one single formula will
be necessary to determine BEP and use of income statement without equations shall not be entertained)

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 BREAK EVEN ANALYSIS UNDER MULTIPLE PRODUCTS AND RESOURCE CONSTRAINTS
Q. 28 . Data relating to sales mix and other of a multi-proof company have been presented below:
Product A B Total
Sales in unit 3,000 2,000 5,000
Sales revenue Rs.30,000 Rs.30,000 Rs.60,000
Less: Variable cost 15,000 20,000 35,000
Contribution margin 15,000 10,000 25,000
Less: Departmental fixed cost 5,000 5,000 10,000
Margin for joint fixed cost 10,000 50,000 15,000
Less: Joint fixed cost 6,000
Net income before tax 9,000
Required:
a) Break even sales volume in units
b) Percentage change in selling price of product B, when selling price of product A is reduced by 10%.
c) Break even sales in units when the sales mix are reversed.
Q. 29 A Company manufactures and sells two types of products under the brand name of P1 and P2. The sales mix in value comprises
60% and 40% respectively. The variable costs of each product are Product P1 – 60% of the selling price and Product P2 – 50% of the
selling price. The overall fixed cost for the firm is Rs. 8,800. The selling price per unit of P1 and P2 is Rs. 12 and Rs. 8 respectively.
Required:
1. Overall break even point in Rs. at present sales mix
2. Sales mix ration in units at present
3. Profit or loss if sales mix ratio in units revised to 1500:500
4. The proposed sales mix to earn a profit of Rs. 560, with the total sales of two products being 2,000 units.
Q.30 Kathmandu Brewery Company produces Mineral water, Beer, soft drink and soda water. Sales manager of the company has
projected total sales of Rs. 180000 for coming month. The share of sales of mineral water, beer, soft drink and soda water are 1/3, 5/12,
1/6 and 1/12 respectively.
Product Materials (Rs.) Labour cost (Rs.)
Mineral water 20,000 16,000
Beer 30,000 21,000
Soft drink 10,000 14,000
Soda water 3,000 3,000
The fixed costs which can not be attributable to each product is estimated Rs. 44100
Required:
a. Determine the break even sales volume for each product and for the company as a whole.
b. What sales volume would the company break even if the production of soda water is halted and sales mix of 1/4, 3/12 ad 3/6
for mineral water, beer and soft drink respectively are developed in the projected sales.
Q. 31 A company produces and sells three products P1, P2 and P3. Selected data on these products show the following:
Products Sales units Selling price Per unit Variable cost Per unit
P1 6,000 Rs. 25 Rs. 15
P2 9,000 Rs. 20 Rs. 10
P3 15,000 Rs. 10 Rs. 4
Total fixed cost Rs. 160,000.
Required:
1. Overall Break even units.
2. Total sales units for earning Rs. 100,000 profit
3. Revised Break even units, if sales mix is changed to 15000: 9000: 6000 from 6000:9000:15000.
Q. 32 The Carrigan Corporation produces three products: Car, Rig, and Gan. The planned cost and price data are as follows:
Car Rig Gan
Selling price $1.00 $0.50 $2.50
Variable cost per unit $.95 $0.20 $1.85
Fixed cost per month $5,000 $7,800 $5,200
Required:
a. Determine the break-even point for each product.
b. Determine the break-even point for total company, assuming that an equal number of units of each product are sold.
Q.33 The Walhers Company produces and sells two products, A and B. Selected data on these products show the following:
A B
Selling Price $ 5.00 $ 6.00
Total variable costs $ 2.50 $ 5.00
Direct fixed costs $ 125,000 $ 100,000

Unallocated company fixed costs $ 55,000

Required:
a. If these products are sold in the ratio of 4A to 3B, what is the break-even point?
b. The sales manager asks you to show the effect on the break-even point of a change in the sales mix to 3A to 4B.

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 c. Explain to the sales manager which of these two sales mixes should be pushed?
Q.36 A multiproduct company follows standard sales mixed policy for its product. The reported income and expenditure for the last year
are presented below:
Product A B Total
Sales in unit 30,000 10,000 40,000
Sales revenue Rs.300,000 Rs.200,000 Rs.500,000
Less: Variable cost 150,000 100,000 250,000
Contribution margin 150,000 100,000 250,000
Less: Departmental fixed cost 50,000 50,000 100,000
Contribution available for joint fixed cost 100,000 50,000 150,000
Less: Joint fixed cost 50,000
Net income before tax 100,000
Required:
a. Sales volume in units to be at Break even point.
b. Percentage increase in the selling price of product A to keep at original break even sales volume if the selling price of
product B decreases by 15%.
c. Break even sales volume in units if, standard sales in changed to one unit to one unit.
Q.37 M/S Thai Food Product produces two different types of instant noodles chicken and Mushroom. These two noodles are
manufactured in two departments separately. The financial data relating to these products are presented below:
Chicken noodles Mushroom noodles Total
Sales in boxes 20,000 10,000 30,000
Sales revenue Rs.1,500,000 Rs.750,000 Rs.2,250,000
Less: Cost of production
Variable cost 900,000 300,000 1,200,000
Departmental fixed cost 200,000 250,000 450,000
1,100,000 550,000 1,650,000
Contribution to joint fixed cost 400,000 200,000 600,000
Less joint cost 150,000
Profit before tax 450,000
Required:
a. Calculate Break even sales volume in units and in rupee
b. A reduction of Rs. 10 per boxes in the selling price of chicken noodles are likely (because of fair completion with the co–
producer) and which mix volume would be desirable to maintain same rupee profit?
Q.39 Following information of X and Y products are extracted.
Product X Product Y
Selling price/unit $ 10 $ 15
Variable cost/unit 4 7
CMPU $6 $8
Machine time per unit 3 hours 6 hours
Supervision time per unit 2 hours 2 hours
Assume that a feasible schedule have total machine hours at most 24,000 hours and less than or equal to 12,000.
How much units of X and Y products should be produced to maximize the profit using graphic approach of linear programming?
Q.40 A multi product Manufacturing Company provides you the following data
Particulars X Y Total
Units produced and sold 2,400 1,600 4,000
Sales revenues Rs.816,000 Rs.460,000 Rs.1,276,000
Less: Variable cost:
Direct material @ Rs. 50 per unit 300,000 160,000 460,000
Direct labour @ Rs. 10 per hour 192,000 144,000 336,000
TVC 492,000 304,000 796,000
Contribution margin 324,000 156,000 480,000
Less: Separable fixed costs 76,000 44,000 120,000
248,000 112,000 360,000
Less: Joint fixed cost – – 96,000
Net Profit before tax 264,000
Required:
(a) Overall BEP (units)
(b) BE sales in units if sales mix is changed to one to one
(c) Which sales mix should be pushed?
(d) Use linear programming techniques to maximize profit under constraint given below:
(e) Availability of raw material = 8,400 units
(f) Maximum labour hours available = 30,000 hrs.

Q.41 The furniture industry produces table and chair. The income statement of the company is given below.

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 Products Desk Table Total
Units produced and sold 200 300 500

Sales revenues (Rs.) 90,000 36,000 126,000

Less: Variable cost:
Wood @ Rs. 30 per sq. ft. 40,500 13,500 54,000
Carpenter’s wages @ Rs. 1.50 per hr. 27,000 13,500 40,500
Total variable cost 67,500 27,000 94,500
Contribution margin 22,500 9,000 31,500
less: Allocated fixed costs 7,500 1,500 9,000
15,000 7,500 22,500
Less: Inseparable fixed costs 10,000
NPBT 12,500
The factory expects the insufficient supply of wood and shortage of skilled carpenters in the year to come. The company projects the
followings.
Wood 870 sq. fts.
Carpenter 1410 hrs.
Required:
(a) BE sales units in total
(b) BE sales units, if the sales mix of the company reverse
(c) Advice to the manager, which of these two sales mix should be pushed
(d) Use the linear programming model to maximize profit under constraints
(e) Find out utilization of constraints at optimum level of activity that yield maximum profit.
P – 42 Radha Bakery manufactures and sells two products. Breads and Cakes. The following is the income statement of Radha Bakery
for the year 2006.
Income Statement For the year Ended 2006
Bread Cakes Total
Sales volume in units 5,000 25,000 30,000
Sales revenues Rs. 2,00,000 Rs. 8,00,000 Rs. 10,00,000
Variable costs Rs. 1,50,000 Rs. 4,00,000 Rs. 5,50,000
Contribution margin Rs. 50,000 Rs. 4,00,000 Rs. 4,50,000
Fixed costs Rs. 1,00,000 Rs. 2,00,000 Rs. 3,00,000
Net profit (loss) (Rs. 50,000) Rs. 2,00,000 Rs. 1,50,000
Required:
(a) Compute the break even for each product and also for the total company.
(b) Selling price of Cakes is to be reduced by 10% to stabilize its market share. What parentage change in the selling
price of Breads is required to earn the same profit as of now?
(c) What mix volume is required to earn a profit of 20% on total sales revenue if the selling price of Cakes is to be
reduced by 10% to stabilize its market share?
(d) Sales volume of Breads is likely to be reduced by 20% during the coming year. What percentage increase in the
selling price of Breads is required to earn 15% net profit on total sales?
P – 43 Sagarmatha Trade Concern (STC) is a retailer for Harker pens. The projected net income for the current year is Rs. 2,00,000
based on a sales volume of 2,00,000 pens. STC has been selling the pen for Rs. 16 each. The variable costs consist of the Rs. 10 unit
purchase price of the pen and handling cost of Rs. 2 per pen. STC’s fixed costs are Rs. 6,00,000 per year.
Management is planning for the coming year, when it expects that the unit purchase price of the pens will increase 30 percent. (Ignore
income tax).
Required:
a) Calculate STC’s break-even point for the current year in number of pens.
b) What will be the company’s net income for the current year if there is a 10 percent increase in projected unit sales volume?
c) What volume of sales ( in Rs.) must TSC achieve in coming year to maintain the same net income as projected for the current year if
the unit selling price remains at Rs.16?
d) In order to cover a 30 percent increase in the purchase price for the coming year and still maintain the current contribution-margin
ratio, what selling price per pen must TSC establish for the coming year?
P – 44 The Sadiksha Motors (P) Ltd trades on two kinds of motorbike: Cosmic 100 cc and Cosmic 125 cc. The
company has gathered the following information for profit planning purpose.
Bike type Sales price Purchasing costs Sales commission
Cosmic 100 cc Rs. 60,000 Rs. 15,000 Rs. 5,000
Cosmic 125 cc 100,000 45,000 5,000
Sixty percent of the company’s sales are Cosmic 100 cc bikes and the rest from the Cosmic 125 cc. The company’s annual fixed costs
expenses are Rs. 10,560,000.
Required:
a) What is the company’s break even point? Assume a constant sales mix.
b) How many motorbikes of each type must be sold to even a target net income of Rs. 220,000 per year?
P – 45 What will be company’s break even point if sales mix be 2:3 for Cosmic 100 cc to Cosmic 125 cc?
Thai food Ltd. produces two different types of food. The financial information regarding these products are given below:
Particulars Food X Food Y Total
Sales in boxes 40,000 20,000 60,000
Sales Revenue 400,000 250,000 650,000

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 Less: Variable costs 280,000 150,000 430,000
Contribution Margin 120,000 100,000 320,000
Less: Departmental Fixed Costs 40,000 30,000 70,000
Joint Fixed Costs - - 100,000
Net income before tax 150,000
Required:
a) What sales volume in rupees and units, the company keeps the company in break even
b) The company is facing the competition in the market. As a result the companies is considering to reduce the
selling price of product Y by Rs. 2.5 per box and what sales mix volume is desirable to earn same amount of profit.
c) The company desires to earn Rs. 300,000 after tax by increasing sales volume of food X. The selling price
of food X decreases by 10% and the company falls on 40% tax bracket. What sales volume maintains the desirable profit?
P – 46 5Godavary Food Products Ltd. produces two brands of can foods; godavary Kids and Godavary Yoths.
Both the products are processed in a machine and then packed manually. The total machine hours available
per annum are 16,000 and the total man-hours available per annum are 20,000. Producing one unit of
Godavary Kids requires 40 machine hours and 20 man-hours, and one unit of Godavary Yoths requires 20
machine hours and 50 man-hours. The overall production conditions may be summed up as presented below:

Godavery Kids Godavery Youths

Selling price per unit Rs.200 Rs.140
Variable cost unit Rs.100 Rs.60
Annual fixed costs are Rs.80,000
The firm intends to maximize its total profit in the given production conditions. The problem confronted by the firm is to choose an optimal
output-mix of two products that can yield maximum profit.
Required
a) What is the optimal production mix to maximize profits?
b) What is the total contribution margin at optimal mix?
c) What is the break even point at optimal production mix?
CVP ANALYSIS UNDER UNCETAINTY
Q.47 Following information is provided:
Selling price per unit Rs.20, Variable cost per unit Rs.10 and Annual fixed cost Rs.300,000
Five different possible happening in the coming year are:
Sales units Probability
60,000 0.10
50,000 0.20
40,000 0.40
30,000 0.20
20,000 0.10
Required:
(a) Mean value (Expected value)
(b) Standard Deviation
(c) What is the probability of sales being more than 50,000 units
(d) What is the chances of sales being less than 30,000 units
(e) What is the probability sales being more than 30,000 units
Q.48 Everest Manufacturing Company provides you the following pertinent information:
Likely demand units Probability
2,000 0.1
2,500 0.2
3,000 0.3
3,500 0.3
4,000 0.1
The fixed cost is expected to be Rs. 72000. The product will yield the contribution margin of Rs. 50 per unit for covering the fixed cost
and yielding net income for tax.
Required:
(a) Expected demand units and Standard deviation
(b) Expected (mean) profit and Standard deviation of profit
(c) Probability of profit being less than zero
(d) Probability of profit being greater than Rs. 50,000
(e) Probability of profit less than Rs. 95,000
Q.49 The data relating to a manufacturing company is given
(a) Probability of profit of expected value (Mean) is Rs. 3950
(b) Standard deviation of profit of expected value is Rs. 1850
(c) A normal distribution of probability is expected.
Required: Probability of profit of expected value being:
(a) More than Rs. 4,000
(b) Less than Rs. 4,000
(c) Between the range of Rs. 2,000 and Rs. 3,000
(d) Between the range of Rs. 3,000 and Rs. 4,000

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(e) Between the range of Rs. 4,000 and Rs. 5,000

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