7.

40
Selling price 25
Variable cost 19.8
Contibution per unit 5.2
Contribution margin % 21%

Total contibution 624000

Fixed cost 468000
(Current) operating profit 156000

1. break even point units 90000 units

2. break even sales 2250000 or 2250000 dollars

3. Target profit of 260,000

FC 468000
Profit 260000

No of units required 140000 units

Amout of sales 3500000 dollars

4. Firm's margin of safety 0.25 (tolerable limit of decline in sales)

Impact In profits due to sales decline by 10%

Contribution margin 561600

Fixed costs 468000
Profit 93600

Fall in profit 40%

Operating leverage 4

Change in profits= OL x Change in % sales

7.44 Computer assisted Labour intensive

SP 30 30
VC 16 19.6
FC 2940000 1820000

At what level both these will give same profit/total cost? (point of indifference)
=> Q*16+29,40,000 = Q* 19.60 + 18,20,000
Q 311111.1
Point of indifference
 Below 3L Labour is better, above computer is better.

Assume current level of sales is 5L units

Contributi 7000000 5200000

FC 2940000 1820000
Profit 4060000 3380000

OL 1.72413793103448 1.53846153846154

If sales fall by 10% the impact will be higher on computer assisted.

Op lev @ P 3.07692307692308 2.28571428571429

7.43
FC Marketing $ 490,000.00

Consulation fee $ 30.00

Wages(per hour) Lawyer $ 25.00

Paralegal $ 20.00
Legal secry $ 15.00
Clerk $ 10.00
$ 70.00

Variable cost Fixed cost

Office supplies per c 4 Office eqpt $ 15,000.00

Property insurance $ 27,000.00
Utilities $ 37,000.00
Malpractice insurance $ 180,000.00
Rent $ 168,000.00
Advt $ 490,000.00
Staff salaries $ 403,200.00
OT $ 7,500.00
(200*1.5*15+200*1.5*10)
Fringe benefits $ 164,280.00
$ 1,491,980.00

Let at breakeven no of clients is x.

So revenue = 30*x*360+20%*30%*x*2000*360
And total cost = 4x + 14,95,980

$ 53,996.00 27.63130602267
x= $ 27.63

Per year 9947.270168161

7.48 IF the stores is closes,

Loss in contribution $ (36,000.00)

Savings in FC $ 30,000.00 (1/4th of cost will still be there of FC)
10% loss in contribution mall sto $ (4,800.00)
$ (10,800.00)

So this store should not have been closed

 Promotional compaign

Promotional expenses $ (5,000.00)

Sales increases by 10% (contribu $ 3,600.00
$ (1,400.00)

Removal of zero promotional items

Savings in Fixed expenses $ 6,000.00

20% of contribution $ (7,200.00)
$ (1,200.00)

7.49 Weeders HC
Unit sales 50000 50000
% share 25.00% 25.00%

Unit SP $ 28.00 $ 36.00

Variable Manuf / unit $ 13.00 $ 12.00
Variable selling cost per unit $ 5.00 $ 4.00
Contribution per unit $ 10.00 $ 20.00
Contribution % 35.71% 55.56%

Fixed cost $ 2,600,000.00

Weighted contribution $ 16.00

Breakeven sales 162500 units

units of each type 40625 40625

++++++
using contribution %
Weighted contribution 40.53%

Breakeven sales (in value) $ 6,415,667.07

7.53 FC
4x25,000
10 x 20,000
Supervisors 20 x 9,000 480,000
Bed capacity $ 2,900,000.00
$ 3,380,000.00
Opportunity cost of additional beds
=20*90*300 $ 540,000.00

VC $ (180,000.00)

29,00,000/60=
x 30 $ (966,666.00)
 Revenue

30*50*360+20%*30%*50*2000*360
$ 2,700,000.00

of cost will still be there of FC)

been closed
LB
100000
50.00%

$ 48.00
$ 25.00
$ 6.00
$ 17.00
35.42%

2nd way

$ 650,000.00 $ 650,000.00 $ 1,300,000.00

W HC LB
81250 65000 32500 76470.58823529

Revenue per patie 300

VC per patient 100

Contibution 200

Breeak even 16900 units

6.38

m = Change in maint cost/ 7.5 => FC = 570

Variable cost 7.5

Month Hrs Maint cost

Jan 520 4470
Feb 490 4260
Mar 300 2820
Apr 500 4350
May 310 2960
Jun 480 4200
Jul 320 3000
Aug 400 3600
Sep 470 4050
Oct 350 3300
Nov 340 3160
Dec 320 3030

Fixed cost 684.65

Variable cost 7.29

Tata Motors Ltd

(Sales-VC)*Qty =FC + Profits

Sales * CM = FC+ Profits

138888x = FC + 9288 FC 937.77203045156

90943x = FC + 5758 x 0.073626029825842

Contribution margin % = Delta Profits/Delta Sales *100

7.363%

Breakeven sales 12736.963173 rupees

Exercise on relevant costing

DM $ 1.00
DL $ 1.20
Var manuf Indirect cost $ 0.80 1. Inventory valuation $ 35,000.00
Fix manuf indirect cost $ 1.50 (Don’t take marketing cost)
$ 4.50
2. Revenue from govt
Fixed manuf cost $ 10,000.00 5000*(1+1.2+0.8+0.5) 18500
Fixed mrk cost $ 18,000.00 VC: 5000*3 15000
$ 28,000.00 Contribution 3500

Profit $ 2,000.00 Revenue from open ma 30000

VC: 22500
Contribution 7500

Method#2:
Revenue 108500

3.
Q(SP-VC)-FC =0 For min cost of selling, SP

10000(SP-3.75)=4000
SP 4.15

4.
5.9

5.
Fixed mrk cost 10000

Revenue $ 120,000.00
$ (71,000.00)
Variable mrk cost $ (24,000.00)
$ 25,000.00

FC =(18000+5000)/2000
11.5
14.49

Total cost of manuf 95.7 * SGA- will be incurred even if it is ousourced

Purchasing price 68

Saving on VC: 120000

Assembly labor 300000
Manuf overhead 300000 (100% is the savings on variable component of manufacuring OH)
720000

Per unit savings 72

Net savings 4 per unit

FC 237000 still will be incurred

 Opportunity cost on selling in open markets

min cost of selling, SP

(No profit no loss_ presence in the outside world)

3.55

Savings in 3
Savings in 0.3
000+5000)/2000 Savings in 0.25
3.55
t of manufacuring OH)
SUMMARY OUTPUT

Regression Statistics
Multiple R 0.998619
R Square 0.99724
Adjusted R Square 0.996963
Standard Error 34.46892
Observations 12

ANOVA
df SS MS F Significance F
Regression 1 4292119 4292119 3612.571 3.949E-14
Residual 10 11881.06 1188.106
Total 11 4304000

Coefficients
Standard Error t Stat P-value Lower 95%Upper 95%Lower 95.0%
Upper 95.0%
Intercept 684.6535 49.51459 13.82731 7.625E-08 574.3281 794.9789 574.3281 794.9789
Hrs 7.288366 0.121261 60.10467 3.949E-14 7.018179 7.558553 7.018179 7.558553

RESIDUAL OUTPUT

ObservationPredicted Maint Residuals

cost
1 4474.604 -4.60396
2 4255.953 4.04703
3 2871.163 -51.16337
4 4328.837 21.16337
5 2944.047 15.95297
6 4183.069 16.93069
7 3016.931 -16.93069
8 3600 0
9 4110.186 -60.18564
10 3235.582 64.41832
11 3162.698 -2.69802
12 3016.931 13.06931
 Hrs Line Fit Plot
5000
4000
Maint cost

3000 Maint cost

2000 Predicted Maint cost
1000
0
250 300 350 400 450 500 550
Hrs

Upper 95.0%
Case- Primus Industries

Product Profitability- Primus

HV MV LV
Sales ₹ 8,640,000.00 ₹ 6,300,000.00 ₹ 6,600,000.00
Unit sold 24000 30000 15000
Selling price per unit 360 210 440

Variable cost
Material 62 44 100
Labour 80 40 120
Variable expenses 90 60 90
Shipping expenses 20 8 20
252 152 330

Contribution per unit 108 58 110

Contribution margin per dollar (%) 30% 28% 25%

Machine hours per unit 3 2 3

Contibution per machine hour 36 29 36.67 (Machine hours are the const

Demand potential 30000 45000 25000

No of machine hours 90000 12000 75000 177000
No of units manufactured/ New product
mix 30000 6000 25000 (On the basis of machine hou

Demand potential 30000 45000 25000

Labour hours per unit 2 1 3
Contribution per labour hours 54 58 36.67
No of labour hours 60000 45000 18000 123000
New product mix 30000 45000 6000 (On the assumption of labour

Contribution per kg of material ₹ 1.74 ₹ 1.32 ₹ 1.10 (Q 5) => If raw material is the

Loss on dropping the prouct ₹ 1,740,000.00

Savings on Fixed cost ₹ 500,000.00 (Qn 6)
₹ -1,240,000.00

14.51
Analysis on the basis of incremental
--> RNA -1 ---> Sales (50*80 400000
VDB ------------> Variable cost 240000
$246,000 160000

--> RNA -2
 | | ---> DM2
| |
<-| |-> LST--------->
Sales 320000 $120,000

----> Pestrol

(If processed benefit from RNA-2 is 320000, further processing benefit is 340000)

# Chapter 6, 7, 14
Cost behaviour
Cost estimation - fixed -> regression
FC, VC, BEP, CM, MOS, OL
Relevant costs for decision making Product mix
Special order
Make or buy
Joint cost
Sunk cost
Opportunity cost

Cost determination
Cost drivers
Cost behaviour
Cost control

Budgets: Projected income statements & balance sheet

Projected sales
Projected production
Raw materials
Labour
Manufacturing overhead
Other expenses
Capital investment
Cash Requirements/Budget
Income statement
Balance sheet

Web Company

12000 units of sales Budgeted profit 108000

10000 units of sales Actual profit 14900

Budgeted profit for actual sales 44000

 Price
RM
Quantity

Labour Rate
Efficiency

Spending
Overhead
Efficiency
(Machine hours are the constraints so we shall select LV first in this case.)

(On the basis of machine hours are constraints)

(On the assumption of labour hours are constraints)

(Q 5) => If raw material is the constraint, we will select product HV

 230000

230000
460000
-120000
340000

Raw material cost -21600

Price variance 44400

Quantity variance -66000
Labour cost -38000

Rate variance -18000

Efficency -20000

Overhads -10500
Labour hrs - driving the overheads
15 per hour
12 per unit
Projected OH 135000
Actual OH 130500
+ve impact 4500

-ve impact 15000

Overall impact 10500