Professional Documents
Culture Documents
ASSIGNMENT-04
MBA
SUBMITTED TO SUBMITTED BY
MRS. MANU KALIA NITIN KUMAR
REG.NO.11006508
ROLL NO.A02
SEC – S1003
OBJECTIVE-
Q1. A manufacturing Company’s director budgeted the following data for the coming
year:
a) Find out the P/V ratio, break-even points & margin of safety
b) Evaluate the effect of:
i) 10% increase in physical sales volume.
ii) 10% decrease in physical sales volume.
iii) 50% increase in variable costs.
iv) 5% decrease in variable costs.
v) 10% increase in fixed costs.
vi) 10% decrease in fixed costs.
vii) Rs 15,000 variable cost decrease accompanied by Rs 45,000 fixed cost
increase.
SOLUTION-
= 60%
= 1, 50,000*100/60
=2, 50,000
Margin of safety= Actual costs- Breakeven point
= Rs 50,000
1. Increase in physical volume will increase proportionately with the variable costs.
= 18,000
Contribution= 180000+18000
=1, 98,000
= 30,000
= 3, 30, 000
Therefore,
= 60%
= 1, 50, 000/60%
= Rs 2, 50,000
And,
= 80,000
= 1, 50, 000*60%
= 2, 50, 000
= 20,000
= 58%
= 2586.20 or 2, 58,621
= Rs 41,379
= 62%
= 2, 41,935
= 58,065
= 1, 65,000/60%
= Rs 2, 75,000
= Rs 25000
= 1, 80,000/3, 00,000*100
= 60%
= 2, 25,000
= Rs 75,000
= 1, 95,000/3, 00,000*100
= 65%
= 1, 95,000 / 65%
=Rs 3, 00,000
Therefore,
= Nil
Q2. A single product company sells its products at Rs 60 per unit. In 1996, the
company operated at a margin of safety of 40%. The fixed costs amounted to Rs.
3, 60,000 & the variable cost ratio to sales was 80%.
In 1997, it is estimated that the variable costs will go up by 10% & the fixed costs
will increase by 5%.
Find the selling price required to be fixed in 1997 to earn. The same P/V ratio as
in 1996. Assuming the same selling price of Rs 60 per unit in 1997, find the
number of units required to produced & sold to earn the same profit as in 1996.
Solution-
Physical volume ratio= selling price- variable costs per unit/ selling price*100
= 60 – 48/60*100
= 20%
Margin of safety is 40%, therefore, breakeven point is 60% of the units sold
Or
Hence,
= 52.80/80%
= Rs 66
No. of units to be produced and sold in 1997 to earn the same profit as in 1996.
Profit in 1996= Rs 2, 40,000
Fixed costs in 1997= Rs 3, 78,000
Desired contribution in 1997= 2, 40,000+3, 78,000
= 6, 18,000
Contribution per unit in 1997
Selling price (-) variable costs per unit
= 60 (-) 52.80
= 7.20
No. of units to be produced and sold in 1997= fixed costs/ contribution per unit
= 3, 78,000/7.20
= 52,500 Units
Q4. This price structure of a gas cooker made by super frame company Ltd is as
follows:
Materials 30
Labor 10
Variable overheads 10
50
Fixed overheads 25
Profit 25
This is based on the manufacture of one lakh gas cookers per annum. The
company expects that due to competition they will have to reduce selling price,
but they want to help the total profits intact. What level of production will have
to be reached that is , how many gas cookers will have to be made to get the same
amount of profits, if :
A) The selling price is reduced by 10 %?
B) The selling price is reduced by 20%?
Solution-
a) P/V ratio
b) Break-even point for sale
c) Profit where sales are Rs 1,00,000
d) Sales required to earn a profit of Rs 20,000
e) Safety margin in period II.
Rs Rs
I 1, 20,000 9,000
II 1, 40,000 13,000
Solution-
a.
I 1, 20,000 9,000
II 1, 40,000 13,000
Increase in sales or 20,000 4,000
output
b. Breakeven point
Sales =Rs 120000
Contribution = 20% of sales
Rs 24,000
24000=fixed costs + profit
24000= fixed costs+9000
Fixed costs= Rs 15000
Sales= Rs 1, 00,000
= Rs 20,000
= Rs 5,000
That is for;
Contribution = Rs 20
And,
When,
Contribution is Rs 35000
= Rs 1, 75,000
And
= Rs 65,000
Q7. A Ltd company has three departments. The following data relates to the
period ending 31 st December 2006.
Marginal cost:
Solution-
There are two cases in this case, because the concerned company has three department, but
Department (c) is making loss, but it is actually not the loss because,
Sales = Rs 60,000
Therefore,
= 14,000
= (6000)
Q8. A radio manufacturing finds that while it costs Rs 6.75 each to make a
component of 376 R, that same is available in the market at Rs 5.75 each with the
assurance of continued supply.
The breakdown of costs is as follows:
Rs 6.25
Case (a),
Materials = 2.75
Labour = 1.75
Total =5.00
Thus, buying will not be profitable and the concerned component should be manufactured in
respect because fixed costs is unchanged in every case.
Case (b),
Total = Rs 9.55
Therefore, in this case the manufacturer will not be in a situation to earn profits and he will
only profitable only if he buys the component.