Nirma University

Institute of Technology
Mechanical Engineering Department
Industrial Management

Assignment – Break Even Analysis

1. The fixed cost for the year 2005-2006 is Rs. 8,00,000. Variable cost per
unit is Rs. 40. The estimated sales for the period are valued as Rs
20,00,000. Each unit sales at Rs. 200.
a. Find the Break Even Point
b. If Rs. 16,00,000 will be the likely sales turnover for the next budget
period, calculate the estimated contribution and profit.
c. If a profit target of Rs. 6,00,000 has been budgeted, compute the
turnover required.
2. The fixed costs for the year 2006-2007are Rs 80,000. The estimates sales
for the period are valued at Rs2,00,000. The variable cost per unit for the
single product made is Rs4/-. If each unit sells at Rs 20 and the number of
units involved coincides with the expected volume of output, construct the
Break Even Chart.
a. Determine the Break Even Point
b. Above how many units, the company should produce in order to
seek profit
c. Determine the profit earned at a turnover of Rs 1,60,000.
d. Find the margin of safety.
3. A tooth paste company sold 2,50,000 packets for which the variable cost of
manufacturing was Rs 4.20 per packet Each packet contributes 30% of its
revenue to fixed costs and profit. This year the company decided to give a
price reduction of 5%. How many pockets will the company have to sell at the 5%
price reduction in order to earn the same profit?

2. An engine lathe costing Rs 10,000 can produce components at the rate of 6 pieces per hour
and another automatic lathe costing Rs 20,000 can produce 20 pieces per hour. The
operator on either of the machine is to be paid at the rate of Rs 1.50 per hour. Determine
the minimum number of pieces which will change the cost situation in favor of the
automatic lathe.

3. A ceiling fan manufacturer buys a component at Rs 10 each, if he decides to make himself,

his fixed and variable cost will be Rs 10,000/- and Rs 5/-per component respectively.
To decide whether to make or buy the component, calculate Break Even Point.

4. If fixed costs, sales price per unit and variable cost per unit are respectively Rs 2000/-, Rs
9/- and Rs 5/-.

a. Determine the quantity to earn Rs 400/- as profit.

b. If 750 units are sold, find margin of safety and profit.

5. A concern is manufacturing a product which is sold for Rs. 10.50 per unit and the
fixed cost of the assets is Rs. 50000/- with a variable cost of Rs. 6.50 per unit.
a. How many units should be produced to break even?
 b. How many units must be produced to earn a profit of Rs. 10000/-
c. What would be the profit for sales volume of 20000 units?

6. The following is the planning budget of M/s ABC Ltd., Budget sales volume is
200000 units with unit sales price of Rs. 25/-
Budgeted costs Fixed (Rs.) Variable (Rs.)
Direct material - 900000
Direct labour cost - 1000000
Factory overheads 800000 300000
Administrative overheads 600000 200000
Distribution costs 600000 400000
Total 2000000 2800000
Budgeted profit: Rs. 800000
Compute the break even point if:
a. 10% increase is effected in fixed cost.
b. 10% increase is effected in variable cost.
c. An increase of 10% in sales price which will reduce the sales volume by 5%.

7. A company XYZ sold 500000 liters of paints with variable cost of Rs. 28/- per liter
every year. Each liter contributes 30% of its revenue to fixed costs and profits.
The company is contemplating a price reduction of 5% this year.
Calculate how many more liters will the company be required to sell at the 5% price
reduction in order to earn the same profit.

8. Two plants are working under one management and there is proposal of merging
these plants into one unit.
The following particulars about the two plants are available.
Plant – I Plant – II
Level of capacity utilization 100% 80%
Fixed cost Rs. 8000000 Rs. 4000000
Variable costs Rs. 44000000 Rs. 24000000
Sales volume Rs. 60000000 Rs. 32000000
Calculate:
a. Capacity of the merged plant to be operated for break even situation.
b. What will be the profit for 75% capacity utilization of merged unit?

9. A company is planning to launch a new product, for any volume of production below
400 units, the fixed cost is Rs. 6000 and the variable cost is Rs. 20 per unit. If the
volume is to be more than 400, larger equipment will be needed and the fixed cost
will be Rs. 10000. However the variable cost will reduce to Rs. 10 per unit. At any
volume the selling price is Rs. 30 unit.
a. What is the break even point?
b. What is the profit or loss if the volume is fixed at 500 units?