Cost Volume Profit Analysis

Task 1 KSBS Ltd. furnish the following information of its Product M. (Rs.) Production (units) Present 10,000 Selling price p.u. Variable cost p.u. Fixed cost p.a. 50 30 60,000 Proposed 10,000 40 30 60,000

Calculate the PV ratio, break-even point and margin of safety.

Particulars Contribution p.u. P.V. ratio

Present Proposed Rs.20 (Contribution p.u. / Selling price 40% p.u.)X100 Rs. 10 25%

Break-even (units)

point (Fixed cost / contribution p.u.)

3,000

6,000

Margin of safety (Units) (Actual sales - Break-even units) Break-even units as % to Total production Margin of safety as % to Total production

7,000 30% 70%

4,000 60% 40%

Interpretation: - The reduction in selling price from Rs. 50 to Rs. 40 per unit maintaining the same level of production, variable cost and fixed cost result in the following: (a) The reduction selling price has reduced the contribution per unit and since the P.V. ratio is the function of contribution to sales, it also has decreased from 40% to 25%. (b) The break-even units has increased from 3,000 to 6,000 units due to lower contribution per unit available to meet the total fixed costs. (c) The higher the break-even point means the lower the margin of safety and lower profitability.

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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

Thus the lowering of selling price has resulted in increase of break-even point and lowering the margin of safety and P/V ratio. The fixed cost, variable cost and selling price have direct impact on profit. If change in any of these variable means a change in profit. Task 2

Rs. The sales of a company are @ Rs. 200 per unit Variable cost Fixed cost The capacity of the factory 20,00,000 12,00,000 6,00,000 15,000 units

Determine the BEP. How much profit is the company making?

Task 3 Sales are Rs. 1,50,000, producing a profit of Rs. 4,000 in period I. Sales are Rs.1,90,000, producing a profit of Rs. 12,000 in period II. Determine the BEP. Task 4 There are two business D&Y, selling identical products in the market. The toll are the budget figures related to a particular year.

* Sales VC FC Profit You are requested to calculate BEP for the two business. Task 5

D 5 lakh 4 lakh 0.5 lakh 0.5 lakh

Y 5 lakh 3.5 lakh 1 lakh 0.5 lakh

In the following information you are required, to calculate BEP. Budgeted output 80,000 units, Fixed expences Rs. 4 lakh, Var. exp. (P/U) Rs. 10/=, S P Rs. 20 (P/U). Find out the BEP in units as well as sales. If the SP is reduced by Rs.2. What will the new BEP. Task 6
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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

KSBS Co. produces a simple article t sells it at Rs.100 each 6t the Mat. Cost of production is Rs. 60 p/unit & fixed cost Rs.40,000 P/annum, calculate. 1) 2) 3) 4) 5) P.V(r) BEP (Sales) Sales to earn a profit of Rs.50,000 Profit at a sale of Rs.3,00,000 New BEP when S.P is reduced by 10%
:

Task 7 Sales Re. 500000 , Calculate MOS Task 8 RKV company has a max. capacity of 4,40,000 units per annum and the normal capacity is estimated at 3,60,000 in a year. Variable manufacturing cost including material & labour is Rs.2.2/unit. Fixed factory overhead is Rs. 1,08,000 per annum. Selling & dist. Expenses of fixed nature is Rs.50,400, whereas variable is Rs.0.6. S.P is Rs. 4 P/Units. Calculate. a) (1) BEP (2) P/V (ratio) (3) Margin of safety b) No. of units to be sold to earn a profit of Rs. 12,000 in a year. c) S.P (P/U) to bring down the BEP to 1,20,000 units. FC - Rs. 150000, Profit - Rs. 100000

Task 9 From the following information calculate PV (r)BEP 0SP (P/U) - Rs. 10 1Trade discount - 5% 2Direct Material cost (P/U) - Rs. 2 3Fixed overhead - 100% Task 10 The following information is obtained from the books of Dr. Raj Computers Ltd. Sales 4,000 units @ Rs. 50 each Production data: Rs.
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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com
OR

direct labour cost

Rs. 2,00,000

Cost Volume Profit Analysis

Materials Consumed Labour Cost Over heads (variable) Fixed overheads Profit 80,000 40,000 20,000 30,000 1,70,000 30,000

Calculate: (i) The number of units by selling which the company will be at break-even; (ii) The sales needed to earn a profit of 20% on sales; (iii) The extra units which would be sold to obtain the present profit, if it is prop osed to reduce the selling price by 20% and 25%; (iv) The selling price to be fixed to bring down the break-even point to 500 under existing conditions. Task 11 Prepare Marginal cost statement from the following particulars: Rs. Variable Cost: Direct Material 4,500 Direct Wages 2,500 Factory Overheads 1,500 ---------8,500 ---------Fixed Cost: Administrative expenses 1,250 ---------Total Cost 9,750 Profit 5,250 ---------Sales 15,000 ---------Task 12 Determine the amount of fixed expenses from the following particulars: Rs. Sales 2,50,000 Direct Material 80,000 Direct Labour 50,000 Variable Overheads 20,000
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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

Profit 60,000

Task 13 Fill in the blanks for each of the following independent situations: ------------------------------------------------------------------------------------------------------Case No. of Selling Variable Contribution Fixed Profit units price cost margin cost sold p.u. % of sales Rs. Rs. Rs. ------------------------------------------------------------------------------------------------------I 15,000 ? 90 ? 30,000 0 II 2,000 160 ? 80,000 ? (2,000) III ? 15 75 ? 25,000 50,000 ------------------------------------------------------------------------------------------------------Task 14 Calculate Break-Even Point from the following particulars. Rs. Fixed expenses 1,50,000 Variable cost per unit 10 Selling price per unit 15

Task 15 The annual profit plan of KPMG Ltd. is given in the following table. From the data given in the table, calculate the break-even point in units. Annual Profit Plan of ABC Ltd. -------------------------------------------------------------------------------------------------Fixed cost Variable cost Total Rs. Rs. Rs. -------------------------------------------------------------------------------------------------Budgeted Sales (2,00,000 42,00,000 @ Rs. 21 each) Budgeted Cost: Direct Labour 8,00,000 Direct Material 9,00,000 Factory Overhead 6,00,000 2,00,000 Administrative expenses 5,00,000 1,00,000 Distribution expenses 3,00,000 2,00,000 Total 14,00,000 22,00,000 36,00,000 Budgeted profit 6,00,000 Capacity of production 2,50,000 units
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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

-------------------------------------------------------------------------------------------------Task 16 The following information relating to a company is to you. Rs. Sales 4,00,000 Fixed cost 1,80,000 Variable cost 2,50,000 Ascertain how much the value of sales must be increased for the company to break-even. Task 17 From the following particulars find out the B.E.P. What will be the selling price per unit if B.E.P. is to be brought down to 9,000 units? Rs. Variable cost per unit 75 Fixed expenses 2,70,000 Selling price per unit 100 Task 18 From the following data, Calculate Break-even point expressed in terms of units and also the new B.E.P. if selling price is reduced by 10%. Fixed expenses: Depreciation Rs. 1,00,000 Salaries Rs. 1,00,000 Variable expenses: Materials Rs. 3 per unit Labour Rs. 2 per unit Selling price Rs. 10 per unit

Task 19 From the following data calculate 1. Numbers of units to be sold to earn a profit of Rs. 1,20,000. 2. Sales to earn a profit of Rs. 1,20,000. Selling price per unit Rs. 40 Variable selling cost per unit Rs. 3 Variable manufacturing cost per unit Rs. 22 Fixed factory overhead Rs. 1,60,000 Fixed selling cost Rs. 20,000

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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

Task 20 The statement of cost of a cycle is as follows: Material Rs. 200 Fixed expenses Rs. 75 Labour Rs. 100 Profit Rs. 125 Variable expenses Rs. 25 Selling price Rs. 525 The number of cycles made and sold are 10,000 units. Find out: (i) Break even point (ii) How many cycles must be produced, and sold if the selling price is reduced by Rs. 25 and the same profile maintained. Task 21 A KSBS manufacturer has developed a new pen with unique features. His design development executive has suggested three possible retail prices VlZ. Rs. 15 for Super star Rs. 10 Deluxe and Rs. 7.50 for Economy model. His marketing manager opines that the wholesalers and retailers have to be given atleast o discount. The estimated fixed cost would be around Rs. 70,000 and variable cost per unit would be Rs. 3.50. (a) Calculate break-even point for each model of ball pen. (b) How much should the manufacturer sell in order to make a profit of Rs. 21,000? Workout for each model of pen. Task 22

From the following information relating to ABC Ltd., you are required to find out (a) P.V. ratio (b) Break even point (c) Profit (d) Margin of safety Total Fixed Costs Rs. 4,500 Total Variable cost 7,500 Total sales 15,000 (c) Also Calculate the Volume of sales to earn profit of Rs. 6,000

Task 23 The cost, volume and profit relationship of a company described by equation Y = Rs. 3,00,000 + 0.7 X in which X represents sales and Y represents total cost. Find out (a) P.V. ratio (b) B.E. sales, (c) Sales volume required to earn a profit of Rs. 60,000 (d) Sales volume when there is a loss of Rs. 30,000.

Task 24 A company has earned a profit of Rs. 30,000 during the year 2006. If the marginal cost and selling price of a product are Rs. 8 and Rs. 10 p.u. respectively, find out the margin of safety.
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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis

Task 25 You are required t6 calculate Break Even Volume from the following data: . Profit Rs. 5,000 (20% of sales) P.V. ratio is 50% Task 26 You are given: Margin of safety Rs. 10,000 which represents 40% of sales. P.V. ratio 50%. Calculate (a) Sales (b) Break even sales (c) Fixed cost (d) Profit Task 27 An analysis of KSBS Manufacturing Co. Ltd. led to the following information: Cost element Variable cost Fixed cost (% of sales) Direct Material 32.8 Direct Labour 28.4 Factory Overheads 12.6 1,89,900 Distribution Overheads 4.1 58,400 Administrative Overheads 1.1 66,700 Budgeted sales are Rs. 18,50,000. You are required to determine (i) the break-even sales volume (ii) the profit at the budgeted sales volume (iii) the profit, if actual sales (a) drop by 10% (b) increase by 5% from budgeted sales. Task 28 Raj Ltd. has prepared the following budget estimates for the year 1999-2000. Sales (units) 15,000 Fixed Expenses Rs. 34,000 Sales Rs. 1,50,000 Variable costs Rs. 6 per unit You are required to: (i) Find the P IV ratio, break-even point and margin of safety. (ii) Calculate the revised P IV ratio, break-even point and margin of safety in each of the following cases: (a) Decrease of 10% in selling price: (b) Increase of 10% in variable costs : (c) Increase of sales volume by 2,000 units : (d) Increase of Rs. 6,000 in fixed costs.

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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com

Cost Volume Profit Analysis Cost Volume Profit Analysis (Decision Making)

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Dr. Sudhindra Bhat MBA,ACS,CFA,MFM, PGDPM, PGDIR, M.Phil., PhD drbhatt2006@gmail.com