Q1. The Salishan Lodge had sales of $4,500,000.

The fixed expense was $1,200,000 and the variable

expense totaled $1,800,000.

Required:
(1) Contribution margin ratio (C/M).
(2) Break-even point.
(3) Contribution margin.

Q2. Falk Company budgets June sales at $265,000. The variable expense is expected to be 56% of sales
and profit is expected to be $31,768.

Required:
(1) Break-even point for June.
(2) June sales if the company made a profit of $10,560.

Q3. Normal capacity of the Fritz Company is 18,000 units and the unit sales price is $2.50. Costs are:

VARIABLE FIXED
(PER UNIT)
Direct materials…………………………………………. $.700 ---
Direct labor……………………………………………….. .800 ---
Factory overhead………………………………………. .150 $3,000
Nonmanufacturing cost…………………………… .025 1,290

Required:
(1) Break-even point in dollars and in units and a proof of the answer.
(2) Sales dollars required to produce a profit of $8,250.

Q4.The accounting firm of Smith and Thompson has been studying the sales requirements of the Frisco
Bottling Company. In the course of the study, the managing partner submits the following estimated
data:

Sales…………………………………………. $900,000 Fixed marketing expenses…………… $71,000

Direct materials………………………… 206,200 Variable marketing expenses………. 80,000
Direct labor………………………………. 165,200 Fixed administrative expenses……… 9,500
Fixed factory overhead………………. 171,896 Variable administrative expenses…. 4,000
Variable factory overhead………….. 102,600

Required: The break-even point in dollars.

Q5. The following data of the Sandmeyer Co. are given for May:

Plant capacity…………………………………… 2,000 units per month

Fixed cost…………………………………………. $4,000 per month
Variable cost……………………………………… $2.50 per unit
Sales price…………………………………………. $5 per unit
Required:
(1) The break-even point in dollars.
(2) The break-even chart. (Use a dollar scale for both x-axis and y-axis, label and identify each element of
the chart.)

Q6. From the books and records of the Coe Company, the cost analyst determined that sales were
$10,000,000 and costs were as follows:

VARIABLE COSTS FIXED COSTS TOTAL

Direct materials…………………………… $3,000,000 --- $3,000,000
Direct labor…………………………………. 3,000,000 --- 3,000,000
Factory overhead………………………… 800,000 $500,000
Marketing expenses…………………….. 700,000 300,000 1,000,000
Administrative expenses……………… 500,000 200,000 700,000

The company is considering two alternative proposals that would change certain cost items. Proposal 1
would increase fixed costs $100,000, with sales and variable costs remaining the same. Proposal 2 would
modernize present equipment at an annual increase of fixed costs of $250,000, with the expectation of
saving the same amount in each of the direct materials and the direct labor costs.

Required:
(1) The current contribution margin ratio (C/M)
(2) The current break-even point.
(3) If Proposal 1 is adopted:
(a) The break-even point.
(b) The profit.
(4) If Proposal 2 but not Proposal is adopted:
(a) The contribution margin ratio (C/M).
(b) The break-even point.
(c) The profit.

Q7. The annual budget of The Bond Co. shows:

Sales (40,000 units)…………………………………………. $80,000

Fixed production cost……………………………………….. $20,000
Fixed marketing and administrative costs…………. 26,200
Variable production cost ………………………………….. 19,000
Variable marketing and administrative costs……. 5,000
Total cost…………………………………………………………. 70,200
Profit from operations……………………………………… $9,800
Required:
(1) The break-even point in sales dollars, using the figures given in the budget.
(2) The break-even point in units, using the figures given in the budget.
(3) The new break-even point in sales dollars, assuming that fixed costs increase $1,867 and variable
costs decrease $800 at the $80,000 sales level.
(4) The increase in sales needed to make the same $9,800 profit, assuming that fixed costs increase by
$2,167 and variable costs by $800 at the $80,000 sales level.
(5) The budgeted profit and the new break-even point in sales dollars assuming that the company
revises the annual budget by increasing the unit sales price by 5%, which is expected to decrease volume
by 15%, with variable costs bearing the same relationship to sales dollars as in the original annual
budget.

Q8. During the year, Klos Company produced and sold 100,000 units. The unit sales price was $100.
Standard and actual costs per unit, based on a production of 100,000 units, were:

Variable cost……………………………………….. $25

Fixed cost……………………………………………. 50
Total……………………………………………………. $75
Required:
(1) Operating income according to the direct costing method.
(2) Break-even point in dollars.
(3) Margin of safety ratio at the given sales level.

Q9. The Ringo Ring Company has budgeted sales of $200,000, a profit of $60,000 and fixed expense of
$40,000.

Required: The C/M ratio.

Q10. The Rose Williams Company has a C/M ratio of 36%. Break-even sales are $160,000. The company
earned a profit of $28,800 during the year.

Required:
(1) Fixed expense. (3) Variable expense for the year.
(2) Sales for the year. (4) Margin of safety ratio.

Q11. The Little Rock Company shows fixed expense of $12,150, an M/S ratio of 25%, and a C/M ratio of
30% for one month’s operations.

Required:
(1) The break-even point in dollars.
(2) Actual sales.
(3) Profit for the month.

Q12. Last month the Henke Company had sales of $220,000, a C/M ratio of 40%, and an M/S ratio of
30%. During the current month, a decrease in sales price and a decrease in fixed costs have resulted in a
C/M ratio of 36% and an M/S ratio of 24%.

Required:
(1) The amount sales decreased.
(2) New break-even point.
(3) Profit during the current month.
(4) Decrease in fixed costs.

Q13. Break-even analysis. The income statement for one of Manhattan Company’s products shows:
Sales (100 units at $100 a unit)………………………………….. $10,000
Cost of goods sold:
Direct labor…………………………………………………………….. $ 1,500
Direct materials used……………………………………………… 1,400
Variable factory overhead………………………………………. 1,000
Fixed factory overhead………………………………………….. 500
Total cost of goods sold………………………………………. 4,400
Gross profit………………………………………………………………… $ 5,600
Marketing expenses: $ 600
Variable ……………………………………………………………… 1,000
Fixed………………………………………………………….……………
Administrative expenses:
Variable………………………………………………………………….. 500
Fixed………………………………………………………………………. 1,000
Total marketing and administrative expenses……… 3,100
Operating income……………………………………………………….. $ 2,500

Required:
(1) Break-even point in units.
(2) Operating income if sales increase by 25%.
(3) Break-even point in dollars if fixed factory overhead increases by $1,700.

Q14. Break-even analysis. The Lublock Specially Products Company manufactures a product which sells
for $5. At present the company produces and sells 50,000 units per year. Unit variable manufacturing
and marketing expenses are $2.50 and $.50, respectively. Fixed expenses are $70,000 for factory
overhead and $30,000 for marketing and administration.

The sales manager has proposed that the price be increased to $6. To maintain the present sales
volume, advertising must be increased. The company’s profit objective is 10% of sales.

Required:
(1) The additional expenditure the company can afford for advertising.
(2) The new break-even point in units and dollars, using the $6 sales price and the additional advertising
expenditure, from requirement (1).

Q15. Break-even analysis. The Carey Company sold 100,000 units of its products at $20 per unit.
Variable costs are $14 per unit (manufacturing costs of $11 and marketing costs of $3). Fixed costs are
incurred uniformly throughout the year and amount is $792,000 (manufacturing costs of $500,000 and
marketing costs of $292,000).

Required:
(1) The break-even point in units and in dollars.
(2) The number of units that must be sold to earn an income of $60,000 before income tax.
(3) The number of units that must be sold to earn an after tax income of $90,000 if the income tax rate
is 40%.
(4) The number of units required to break even if the labor cost is 50% of variable costs and 20% of fixed
costs, and if there is a 10% increase in wages and salaries.
Q16. Break-even analysis – hospital operations. The controller of St. Paul’s Baptist Hospital analyzed its
operations and found this information:

COST VARIABLE FIXED

Direct patient supplies…………………………… $ 100,000 ---
Direct salaries……………………………………….. 754,625 ---
Patient service overhead………………………… 25,000 $ 105,000
Administrative expenses………………………… 75,000 175,000
Total………………………………………………….. $ 954,625 $ 280,000

These costs are based on normal inpatient service days of 27,275 in the eighty-bed hospital and on
patient service revenues of $1,227,375. Deficits are financed by contributions from the Southern
Baptist Convention.
Since the hospital is currently operating at its highest practicable capacity, a proposal has been made for
the construction of an additional wing of twenty beds. Fixed costs are expected to increase in about the
same ratio as the current fixed-costs-per-bed ratio; the variable-cost-to-sales ratio should remain the
same.

Required:
(1) The current contribution margin ratio (C/M). (Compute the answer to 1/100th of 1%.)
(2) The current break-even point in revenue volume and in patient service days.
(3) The current margin of safety ratio (M/S). (Compute the answer to 1/100th of 1%.)
(4) The new break-even point in revenue volume and inpatient service days, if the additional wing is
constructed.

Q17. Break-even analysis with shifting costs and profits. The Savannah Company provides the following
data:

Normal plant capacity………………….. 200,000 units

Fixed cost…………………………………….. $120,000
Variable cost…………………………………. $1.35 per unit
Sales price…………………………………… $2.25 per unit

Required:

1) The break-even point in dollars, in number of units, and in percent of capacity.

2) The margin of safety and the margin of safety ratio when operating at normal plant capacity.
3) The new break-even point in dollars, if the sales price is reduced to $2 and other data remain
the same.
4) Volume in dollars required to yield a profit of $30,000 if the calculation is based on (a) the data
of (1); (b) the data of (3).
5) The break-even point in dollars in number of units and in percent of capacity based on the data
of (1), except that the fixed cost is reduced by $20,000.
6) The expected profit if budgeted sales of $450,000 are realized, costs are the same as at the
beginning of the problem, and (a) the sales price per unit is $2.25; (b) the sales price per unit is
$2.
Question # 1

The fixed cost of an enterprise for the year is Rs.400,000. The variable cost per unit for a single product
being made is Rs.20. Each units sells at Rs.100.

Required
a) Breakeven point.
b) If the turnover for the next year is Rs.800,000, calculate the estimated contribution and profit,
assuming that the cost and selling price remain the same.
c) A profit target of Rs.400,000 has been desired for the next year. Calculate the turnover required
to achieve the desired result.

Question # 2

The Parrot Company sold 150,000 units @ Rs.30 each, variable cost is Rs.20 (manufacturing Rs.15 &
marketing Rs.5), fixed cost is Rs. 1,200,000 annually which occurs evenly throughout the year
(manufacturing Rs.800,000 & marketing Rs. 400,000).

Required

I. Breakeven point in units.

II. Breakeven point in Rupees.
III. Number of units to be sold to earn profit before tax of Rs. 200,000.
IV. Number of units to be sold to earn after tax profit of Rs.100,000 if tax rate is 25%.
V. The breakeven point in units if selling price is increased by Rs.3 and variable cost by Rs.2
per unit.

Question # 3

Gala Promotions Limited is planning a concert in Karachi. The following are the estimated costs of the
proposed concert:
Rs.(000)
Rent of premises 1,300
Advertising 1,000
Printing of tickets 250
Ticket sellers, security 400
Wages of Gala Promotions Limited Personnel employed at the concert 600
Fee of artist 1,000

There are no variable costs of staging the concert. The company is considering a selling price for tickets
either Rs.4,000/- or Rs.5,000/- each.
 Required
i. Calculate the number of tickets which must be sold at each price in order to breakeven.
ii. Recalculate the number of tickets which must be sold at each price in order to breakeven, if the
artist agrees to change from fixed fee of Rs. 1 million to a fee equal to 25% of the gross sales
proceeds.
iii. Calculate the level of ticket sales for each price, at which the company would be indifferent as
between the fixed and percentage fee alternative.
iv. Comment on the factors, which you think, the company might consider in choosing between the
fixed fee and percentage fee alternative.

Question # 4

The Sindh Engineering Company produces a bicycle which sells at Rs. 1,000 per unit. At 80% capacity
utilization which is the normal level of activity, the sales are Rs. 180 million. Costs are as under:

Prime cost per unit Rs. 400

Factory indirect cost Rs. 30 million (including variable cost Rs.10 million)
Selling costs Rs. 25 million (including variable cost Rs.15 million)
Distribution costs Rs. 20 million (including variable cost Rs.11 million)
Administration costs Rs.6 million
Commission and discounts are 5% of sales value

Required:

i. Calculate the breakeven sales value.

ii. Prepare statements showing sales, costs, profit and contribution margin at each of the following
levels:
a) at the normal level of activity;
b) if unit selling price is reduced by 5% thereby increasing sales and production volume by
10% of the normal activity level;
c) if unit selling price is reduced by 10% thereby increasing sales and production volume by
20% of the normal activity level.