Problem #01

Zoya Butt a Pharmaceutical company produces formulations having a shelf life of one year. The company has an
opening stock of 30,000 boxes on 1st January, 2005 and expected to produce 1, 30,000 boxes as was in the just
ended year of 2004. Expected sale would be 1, 50,000 boxes. Costing department has worked out escalation in
cost by 25% on variable cost and 10% on fixed cost. Fixed cost for the year 2004 is Rs. 40 per unit. New price
announced for 2005 is Rs. 100 per box. Variable cost on opening stock is Rs. 40 per box. You are required to
compute breakeven volume for the year 2005.

Problem #02

M o o s a B u t t Ltd. manufactures a semiconductor for which the cost and price structure is given
below:

Rs. per unit

Selling price 500
Direct material 150
Direct labour 100
Variable overhead 50
Fixed cost = Rs. 2 lakhs.
The product is manufactured by a machine, whose spare part costing Rs. 2,000 needs
replacement after every 100 pieces of output. This is in addition to the above costs. Assume that
no defectives are produced and that the spare part is readily available in the market at all times
at Rs. 2,000.
(i) Prepare the profitability statement for production levels of 2,000 units and 3,000 units,
when fixed cost = Rs. 1 lakh.
(ii) What is the break-even point (BEP) for the above data?
(iii)Comment on the BEP, if the fixed cost can be reduced to Rs. 1,80,000 from the existing
level of 2 lakhs.

Problem #03

A company makes 1,500 units of a product for which the profitability statement is given below:
Rs.
Sales 1,20,000
Direct materials Direct 30,000
labour 36,000
Variable OH 15,000
Subtotal variable cost Fixed 81,000
cost 16,800
Total cost 97,800
Profit 22,200
After the first 500 units of production, the company has to pay a premium of Rs. 6 per unit
towards overtime labour. The premium so paid has been included in the direct labour cost of Rs. 36,000
given above.
You are required to compute the Break-even point.
Problem #04

Draw and explain the angle of incidence in a break-even chart. What is its significance to the management?

Problem #05

Is it justifiable to sell at a price below marginal cost at any time? Mention the circumstances in which it is
justifiable.

Problem #06
Zainab Butt, a retail store buys computers from Comp Ltd. and sells them in retail. Comp Ltd.
pays Zainab Butt. a commission of 10% on the selling price at which Zainab Butt sells to the outside
market. This commission is paid at the end of the month in which Zainab Butt. submits a bill for the
commission. Zainab Butt. sells the computers to its customers at its store at Rs. 30,000 per piece
Comp Ltd. has a policy of not taking back computers once dispatched from its factory. Comp Ltd.
sells a minimum of 100 computers to its customers.
Comp Ltd. charges prices to Zainab Butt. as follows:
Rs. 29,000 per unit, for order quantity 100 units to 140 units.
Rs. 26,000 per unit, for the entire order, if the quantity is 141 to 200 units. Zainab Butt. cannot
order less than 100 or more than 200 units from Comp Ltd.
Due to the economic recession, Zainab Butt. will be forced to offer as a free gift, a digital
camera costing it Rs. 4,500 per piece, which is compatible with the computer. These cameras
are sold by another Co., Photo Ltd. only in boxes, where each box contains 50 units. Zainab
Butt. can order the cameras only in boxes and these cameras cannot be sold without the
computer.
In its own store, Zainab Butt. can sell 110 units of the computer. At another far of location,
Zainab Butt. can sell upto 80 units of the computer (along with its free camera), provided it is
willing to spend Rs. 5,000 per unit on shipping costs. In this market also, the selling price that
each unit will fetch is Rs. 30,000 per unit.
You are required to:
(i) State what is Ret's best strategy along with supporting calculations.
(ii) Compute the break-even point in units, considering only the above costs.

Problem #07

The following information is given by Zoya Butt Ltd.:

Margin of safety Rs. 1,87,500
Total cost Rs. 1,93,750
Margin of safety 7500 units
Break-even sales 2500 units
Required:
Calculate Profit, P/V Ratio, BEP Sales (in Rs. )and Fixed Cost.
Problem #08

Moosa Butt Entertainment Ltd. hires an air-conditioned theatre for stage plays on weekend
evenings. One play is staged per evening. The following are the seating arrangements:
VIP rows-the first 3 rows of 30 seats per row, priced at Rs. 320 per seat.
Middle level-the next 18 rows of 20 seats per row priced at Rs. 220 per
seat. Last level -6 rows of 30 seats per row priced at Rs. 120 per seat.
For each evening a drama Troup has to be hired at Rs. 71,000, rent has to be paid for the theatre at
Rs. 14,000 per evening and air conditioning and other state arrangements charges work out to
Rs. 7,400 per evening. Every time a play is staged, the drama Troup’s friends and guests
occupy the first row of the VIP class, free or charged, by virtue of passes granted to these
guest. the troupe ensures that 50% of the remaining seats of the VIP class and 50% of the
seats of the other two classes are sold to outsiders in advance and the money is passed on
toMoosa Butt Entertainment Ltd. The troupe also finds for every evening, a sponsor who
puts up his advertisements banner near the stage and pays Moosa Butt Entertainment a sum of
Rs. 9,000 per evening. Moosa Butt Entertainment Ltd. supplies snacks during though interval
free of charge to all the guests in the hall, including the VIP free guests. The snacks cost Rs.
20 per person. Moosasa Butt Entertainment Ltd. sells the remaining tickets and observes that
for every one seat demanded from the last level, there are 3 seats demanded from the middle
level and 1 seat demanded from the VIP level. You may assume that in case any level is filled, the
visitor busy the next higher or lower level, subject to availability.
You are required to calculate the number of seats that Entertain U has to sell in order to
break-even and give the category wise total seat occupancy at BEP.

Problem #09

Zainaib Butt Holidays company contracts to take children on excursion trips Relevant
information for a proposed excursion trip is given below:
Revenue per trip per child 4000
Expenses that have to be incurred:
Train fare per child per trip 1700
Meals per child per trip 300
Craft Materials per child per trip 600
Room rent per trip (4 children can be accommodated in a room) 760

Local Transport at picnic spots (per vehicle) 1200

(each vehicle can seat 6 children excluding the driver)
Fixed costs that are required to be covered in a trip Rs. 518,130 .
Find the minimum number of children to cross the break-even point and start earning a profit.
Problem #10

The following results of a company for the last two years are as follows:
Year Sales ( `) Profit ( `)
2011 1,50,000 20,000
2012 1,70,000 25,000
You are required to calculate:
(i) P/V Ratio
(ii) B.E.P
(iii) The sales required to earn a profit of Rs.40,000
(iv) Profit when sales are Rs.2,50,000
(v) Margin of safety at a profit of Rs.50,000 and
(vi) Variable costs of the two periods.

Problem # 11

The Reliable Battery Co. furnishes you the following income information:
Year 2012
First Half (Rs.) Second Half ( Rs.)
Sales 8,10,000 10,26,000
Profit earned 21,600 64,800
From the above you are required to compute the following assuming that
the fixed cost remains the same in both periods.
1. P/V Ratio
2. Fixed cost
3. The amount of profit or loss where sales are Rs.6,48,000
4. The amount of sales required to earn a profit of Rs.1,08,000