Solution 1

a) p/v ratio = contribution/ sales*100

=sales – variable cost/sales *100

= 3,00,000-1,20,000/3,00,000*100

= 180000*3,00,000*100

=60%

Break even point =total fixed cost/pv ratio

=1,50,000/60%

=1,50,000/60*100

=2,50,000

Margin of safety = Actual sales- sales at break even point

= ` (3,00,000-2,50,000)

=` 50,000

b) i) selling price =3,00,000+10% of 3,00,000

=3,00,000+10/100*3,00,000
=3,00,000+30,000=3,33,000
P/V ratio = contribution /sales*100
= sales-variable cost/sales*100
=3,30,000-1,20,000/3,30,000*100
=2,10,000/3,30,000*100=63.63%
Break even point =total fixed cost/pv ratio
=1,50,000*100*100/63.63%
=235737.85
Margin of safety= Actual sales-sales at break even point
=3,30,000-2,35,7373.85
=94,262.15
ii) Selling price=
Solution 4

Breakeven point = fixed cost/selling price – variable cost

Maintaining profit = fixed cost + profit/selling price – variable cost

1) 2500000+2500000/90-50
= 5000000/40
= 125000 gas cookers
Where 10% reduction enrolling price 100*90/100= `90
2) 2500000 + 2500000/80 – 50
= 5000000/30
= 166667 gas cookers
Where 20% reduction in selling price 100*80/100= ` 80

Solution 5

a) p/v ratio = change in profits/ change in sales*100

= 4000/20000*100
= 20%
b) contribution for the first half = 1200000*20%
= 24000
Profit = 9000
Fixed cost = 15000

For the second half contribution =1400000*20%

= 28000

Profit = 13000

Fixed cost = 15000

Total fixed cost = 30000

Break even point = fixed cost/ p/v ratio

= 30000/20%

= 150000

c) contribution = sales – variable cost

 = 100 – variable cost = 20
Variable cost = 80

d) profit be earned = 20000

sales = fixed cost + profit/ contribution
= 30000 + 20000/20%
= 250000
e) margin of safety for period 2
= profit/p/v ratio
=13000/20%
=65000

Sol 6

Break even point = fixed cost/selling price – variable cost

a) sterling tea dollar tea

=150000*1500000/300000 = 350000*1500000/500000
=750000 = 1050000
b) sterling tea dollar tea
sales = 1620000 = 1620000
- variable exp. = 1530000 =1200000
contribution = 90000 =420000
- fixed cost = 157500 =367500
profit = 67500 =52500

the company is in the stage of profit in the only dollar case, and in the sterling tea the
company is in loss.

Sol 7

Dept a dept b dept c

Sales 80000 40000 60000

- variable cost 24000 15000 40000

contribution 56000 25000 20000
- fixed cost 20000 10000 20000
profit 36000 15000 nil

p/v ratio = contribution/ sales*100

 dept a = 56000/80000*100
= 70%
Dept b = 25000/40000*100
= 62.5%
Dept c = 20000/60000*100
= 33.33%
The manager is right at his place that he is disappointed wit the result of higher marginal
cost and there is no hope of being reduced further . information is required to being
presented in the most suitable manner indicating that dept c should be closed down. I
suggest that a ltd company should have to close the dept c as it doesn’t provide any profit to
the company and even it takes more total cost ie. Rs 66000 more than the other
departments moreover p/v ratio is also the lowest which is an important tool to measure
the profitability of each product.

Sol 8

a) Variable cost = 2.75

Labour cost = 1.75

Other variable cost = .5

Total variable cost = 5

Fixed cost = 1.25

Total cost = 7

If the same is available in the market at rs. 5.75 each with the assurance of continue supply.
Company should not accept the offer as the component costs more than its manufactured in the
company because the fixed cost remains the same. The company should produce the component itself.

b) Market price of component = 4.55

Add: fixed cost = 1.25
Total cost = 5.80

If the supplier offered the component at rs. 4.55 the fixed cost remains the same ie. 1.25 so the
total cost is 5.80. the company should accept the offer to buy the component at price 4.55
because the component is more than the market price and it might lead the company to earn
more profits.