21" Aug’20 (Friday) 10:50A.M.-11:40AM University Dept. of Commerce B.A Bihar University M.Com 2™ Semester 2018-20 ject: ‘Accounting Paper: 1x{3) Unit 4: Chapter- Break-Even Analysis Content: Problem Solving relating to BEP By Prof (Or) Ravi Kr Srivastava Google Classroom Code:- lnsyhw2w Scanned with CamScannerSP= P/V Ratio weraqut Saree Sa\v (souk IMPORTANT EXAMPLES) | Pro o ° a \ e g Illustration 17 a EP Frifed qareit & ya Fe : Calculate from the following informations : (1) SOTA SIFT (P/V Ratio) (2) wr farde-firg (B. E.P) (3) FET BA (Margin of Safety)! 2017 2018, zt z Sales 40,000 60,000 Less : Variable Costs 22,000 36,000 Contribution Margin 18,000 24,000 Less : Fixed Costs 8,000 10,000 Profit 30,000 14,000 Solution 1. Profit Volume Ratio (P/V Ratio) For 2017 = 18.000 199 = 45% 2. Break-Even-Point (B. E. P) : For 2017 = 8,000 45% 8,000 x 100 7 45 = 17,778 (approx.) = Contribution Margin SP-VC ‘SP x 100 Or SP x For 2018 24,000 og) — 60,000 * 100 = 40% 100 _ cr P/V Ratio For 2018 40% = 20,000 190 Scanned with CamScannerFy morein of Softy: = — Profit P/V Ratio For aon a For 2018 10,000 _ 10,000 x 14,000 _ 14,000 x 100 Eh 45 40% “40 = € 22,222 (approx.) = 36,000. ration 18 erates TAT a TT at (Calculate from the following informations) : (1) SHAT STA (P/V Ratio); (2) aH frse-fry (B.E.P); (3) FU-A (Margin of Safety)! 2017 2018 t zt Sales 5,00,000 7,50,000 Fixed Costs 1,00,000 1,25,000 Variable Costs 2,75,000 Ratio = SP=VC x 199 1. PIV Ratio = =“55 For 2017 For 2018 5,00,000 ~ 2,75,000 750,000 - 4,50,000 = 5,00,000 - 2,75,000 = 1,50,000 - 4,50,000 ,00,000* 100 750,000 _* 100 = 45% = __Fe 2. Break Even Point (B. E. P) = FR, For 2017 For 2018 _ 1,00,000 _ 125,000 “45% “40% _1,00,000 x 100 _ 1,25,000 x 100 . 45 0 = € 2,22,222 (approx.) = €3,12,500 Profit 3 Margin of Safety = By Ratio For 2017 For 2018 __(6,00,000 — 1,00,000 - 2,75,000) _ (7,50,000 - 1,25,000 - 4,50,000) ~ 45% 40% 1,25,000 = 1:75,000 =5, 100 = 100 =€ 2,177,778 (approx.) = €4,37,500 Sa Scanned with CamScannerIllustration 19 Informations regarding Sanjeev Ltd. are available as follows : Sales Less : Variable Costs Contribution Less : Fixed Costs Profit "60.000 You calculate : (1) PN Ratio (2) Profit on the Sales of € 9,00,000 (3) Required Sales to earn a net profit of € 90,000 Solution : SP-VC 1 P/V Ratio = sp. 100 = 6,00,000 - 4,50,000 6,00,000 FC P/V Ratio _, 90,000 _ 90,000 ore = ane x 100 = € 3,60,000 fe 3. Net Profit for the sales of € 9,00,000 : \ ~ Contribution Margin (CM) = P/V Ratio x Sales = 25% x 9,00,000 . 3 x 9,00,000 (ok CM = € 2,25,000 x 100 = 25% 2. B.E. P= ay oo Q 9 ~o = % 1,35,000 4. Required sales to earn a profit of & 90,000 Contribution Margin (CM) = FC + Profit Dlustration 20 ‘The following informations are available : Fixed Expenses Variable Expenses Selling Price Calculate the following : (1) Break-even Point (BEP) in Units (2) Sales volume to earn a profit of € 50,000 (3) What additional units would be necessary to increase the profit by t 5,000? Scanned with CamScanneram sole! __ Fixed Cost__ BEP (Units) = Contribution p. u- 1 = 2,500 Units “20 Whore, tribution p.u. = Selling Price p.u. ~ Variable Cost p.u- = 60-40 =% 20 Fixed Cost + Profit 2 Sales = Contribution p. u. = 50,000 + 50.000 - 5,000 Units i _,, . Additional Profit 3. Additional Units = Contribution p. u. : 5.000 _ 260 Units Iivstration 20(A) ‘The following informations are available : % 25,000 Fixed Expenses Variable Expenses 20 p. © 30 p. Selling Price Calculate the following : (1) B. E. P. in Units (2) Sales volume to earn a profit of t 25,000 (3) What additional units would be necessary to increase the profit by € 10,000 ? Solution Calculation of Contribution p. u. Selling Price p. u. Less : Marginal Cost p. u. Contribution p. u. Fixed Costs Contribution p. u. = 25,000 = 2,500 Units AE B. E. P. (Units) = 2. Units to earn a profit of € 25,000 : gp - —FC+Profit_ Contribution p. u. 25,000 + 25, “ = 25,000 + 26,000 _ 5,000 Units 3. Units to earn a profit of € 25,000 + 10,000 = * 35,000 __FC+ Profit. SP = Contribution 25,000 + 35,000 _ 60,000 25,000 + 35,000 = OO 60.000 _ 6,000 Units. Maou ant = Goss Umi} = S808 Ans ee \OO9 Yih u. u lIs8 84 100°") ‘ation ing "tocam a 8 would } ed certain da ‘operations, tt present Scanned with CamScanner= T@ 1,ou,vuu Tilustration 27 Calculate from the following data : (1) PV Ratio (2) Profit when sales was & 50,000. (3) New BEP when SP is reduced by 20%. : . CG) Sales in Rupees to earn a profit of¢ 10,000 after (deducting) reducing SP by 2 Fixed Expenses © 10, BEP. 2 Solution Since, B.E.P (®) and fixed expense are known, hence : F 1. PWV Ratio = ap x 100 _ 10,000 199 = = Jeigon * 100 = 40% 2. Profit when sales are € 50,000 : Profit = Sales x P/V Ratio - FC 50,000 x 40% - 10,000 =(50,000 “0 10,000 = € 10,000 3. New B.E.P. when SP isreduced by 20% New SP = 100 - 20% = % 80 VC = 100 - 40 (Old P/V Ratio) = % 60 Scanned with CamScannerBreak-Even-Point or Cost Volume Profit Analysis 237 New P/V Ratio = roe x 100 = 80-60 =20 . = x 100 =< x 100 = 25% rc New BEP. ©) = pay Ratio 10,000 _ 10,000 = 10,000 _ 10,000 , 199 - = Oe = x 100 =* 40000 4. Soles in € to earn a profit of € 10,000 ofter reducing selling price 20% : . ,_ _ FC + Profit Sales in © = Now P/V Ratio _ 10,000 + 10,000 _ 20,000 , 199 = € 80,000. = DB 25 Scanned with CamScannerratio ey = 1,40,000 - 75,000 = % 65,000 Hus! t Following Petras # are available from the accounting records of Praveen Ltd. : Salen Profit / Lows Year (r) (ey 2011 25,000 5,000 (Lowa) 2012 76,000 5,000 (Profit) Find out : (1) PIV Ratio, (2) Fixed Cost, (3) Marginal Cost for 2011 and 2012, 4) BEP,, . (5) Margin of Safety for the Profit of ¥ 10,000. vadh, 2009) Solution (1) Profit-Volume Ratio : __ Change in Profit PIV Ratio = Gparge in Sales * 10° 5,000 - (- 5,000, = F:000 26,000 * 10° 212.000 99 «208 (2) Fixed Cost: Fixed Cost = Sales x P/V Ratio - Profit 20 _ - = 15,000 x 99 ~ 5,000 = & 10,000 Marginal Cost for 2011 and 2012 : ° Marginal Cost = Sales x (1 - P/V Ratio) 20 2011 = 25,000(11 - 100)7? 20,000 20 2012 = 15,0001 - i00)" 60,000 even Point: (4) Break-even pc 19000 BEP.(= py Ratio™ 39 100=8 50,000 ty for the profit of % 10,000 : (6) Margin see _ Profit _ 10,000 M.OS-= bry Ratio” 99 * 100 = 50,000 Scanned with CamScannerav 1u 42 Aiofeatiohea ) been extracted from the Cost records of ¥ Ltd. : Total Capacity 40,000 units Capacity B.E.P. 40% Variable Cost per unit z 16 Fixed Costs . = 80,000 Find out selling price per unit for the above B.E.P. Solution . B.E.P. in units x 100 ity B.E.P, = _B-E-P. in units x 100_ Capacity BE-P. = 7051 Capacity in unite 40= B.E.P. in units x 100 40,000 Scanned with CamScannerCOST-VOLUME-PROFIT ANALYSIS (BREAK-EVEN POINT) 389 B.E.P. in units x 100 = 40,000 x 40 BP. in units = B00 x 40 = 16,000 units 4. F 80,000 _y5 C per unit= 5 FP in units ~ 16,000 P=V+C per unit = 16 +5 = 21 per unit. or Scanned with CamScanner(2) Break-even Ratio : It shows the ratio between B.E.P. and actual sales made by a business concern. It is obtained as follows : | BE, Ratio = PEP. x 100 Actual Sales ion 50 The ing data relate to Chhaya Ltd. for the year 2012 : Cost per Unit z Materials 15.00 Labour 7.00 Variable Overheads 3.50 Selling Price 30.00 Fixed Cost 1,350 Units sold during 2012 1,500 units Find out B.E.P. in % and BE. Ratio. Scanned with CamScannerCOST-VOLUME-PROFIT ANALYSIS (BREAK-EVEN POINT) 395 oaen:FC=E 1,350, Spa = % 30, Vpu = 15 +7 +3.50=2 25.50 B.EP. @=Fe x Spu Cpu 1,350 40,500 =—1350_ ay . 30 - 25,50 “80-45 = 9,000 Ree nee _ _BEP.ing B.E. Ratio = 7 ual Sales * 100 = 2,000. , 100 = 20% Scanned with CamScanner2,78,500 Problem 16 The following informations are concerned with a company : (i) Margin of Safety Ratio 20% (ii) P/V Ratio 40% (ii) Fixed Costs © 1,50,000 Find out : (i) Sales at B. E. P. (ii) Actual Total Sales for the year. (iii) Profit for the year. (iv) Variable Costs for the year. Scanned with CamScannerSolution (i) Sales at B.E.P. : =— FC __ _ 150,000 PWV Ratio 40% = 250.000 100 = 3,75,000 (ii) Actual Total Sales for the year : = Sales at B. E. P. x 100 100 - Margin of Safety i.e. 20% : 8.75,000 100 _» 468,750 (iii) Profit for the year : =(SP x P/V Ratio) - FC 40 -{4.ss.2s0 x so) 1,50,000 =f 1,87,500 - 1,50,000 =% 37,500 (iv) Variable Cost for the year : = 60% i.e. 100 - 40% (P/V Ratio) of Actual Sales = 4:88,750 x 60 =t 281,250 Scanned with CamScanner= 0,0U,vuu AT = 8 a,voyvyy 100 Problem 23 The P/V Ratio of Bansal Bros. is 40% and percentage of Margin of Safety is 30%. You are required to calculate B.E.P. and Profit if the Sales Volume is © 4,50,000. Solution : q@ M. O: S. = Sales x % of M. O.S. = 30 = 4,50,000 x 755 = 1,35,000 Scanned with CamScanner(2) B. E. P. = Actual Sales - M. O. S. = ® 4,650,000 - 1,35,000=% 3,15,000 (3) Profit = M. O. S. x P/V Ratio 40 = 1,35,000 x 400 = * 54,000 Problem 24 (i) The Ratio of V.C. to Sales is 50%. (ii) B.E.P. in 75% of sales. (iii) Find the capacity sales when FC is * 3,00,000. (iv) Determine Profit at 80% and 100% Capacity. Solution , Sales (Assumed) 10 Less : Variable Cost (50%) % : Contribution -% __FCxSales = Sales at BE. P. = Contribution = £:001000 , 100 = € 6,00,000 Since B.E.P. is 75% of sales, the total capacity should be : $,00,000 x 100 _ 5 00,000 : Profit at 80% and 100% Capacity : 80% 100% z= t Sales 6,40,000 8,00,000 Less : Variable Costs (50% of Sales) 3,20,000 4,00,000 Contribution 320,000 4,00,000 Less : Fixed Cost 3,00,000 300,000 Profit 20,000 Problem 25 ‘The following informations are available regarding a fuctory : t Fixed Cost 80,000 Selling Price (p.u.) D Variable Cost (p.u.) Estimate the impact of the following on B.E.P. : (1) 20% increase in Fixed Costs, (2) 10% increase in Variable Cost, (3) 10% increase in F.C. and 5% decrease in vc, (4) 10% decrease in F.C. and 20% increase in vc. Solution its) = — FC - 80,000 Present B. E. P. (Units) = gp yg = eaeao = £0,000 = 20,000 Units Scanned with CamScanner1. 20% Increase in FC : FC = © 80,000 + 20% of © 80,000 = ® 80,000 + 16,000 = * 96,000 BP) = FC 96,000 _ 96,000 SP-VC" 24-20" 4 = 24,000 Units. 2. 10% Increase in VC ; = € 20 + 10% of t 20=* 22 7 B.E. Pay) = ere s,g00 = 40,000 Units 3. 10% Increase in FC and 5% Decrease in VC : FC = € 80,000 + 10% of 80,000 = * 88,000 VC =€ 20 - 5% of t 20=* 19 FC - 88,000 = 8000 BLE. Pay= sp VG" 24-107 4. 10% Decrease in FC and 20% Increase in VC : FC = 80,000 ~ 10% of t 80,000 = € 72,000 VC =€ 20 + 20% of t 20=8 24 € 72,000 Units = 17,600 Units Problem 26 The following informations have been given in respect of acompany: t Fixed Costs 40,000 Selling Price (p.u.) 8 Variable Cost (p.u.) 5 Show the impact of the following changes in B.E.P. : (1) Fixed Cost increases by € 12,500. (2) Fixed Cost decreases by € 10,000. (3) Variable Cost increases by 20%. (4) Fixed Cost increases by 20% and Variable Cost decreases by 10%. Solution 1 1 Fésed Cost increase by © 12,500 : eS FC (new) = t 40,000 + 12,500 = * 62,500 FC = BLE. Pony Spy pp ae = 17,500 Unite eee come cacrenten LO FC (new) = ene 10,000 = * 30,000 B. E. P. (new) = wove = 2000 - 10,000 Units 7 Variable Cost increase by 6: VC (new) =€ 5 + 20% oft 5=€6 i= 20 B.E. Pay gp WG BG ge = 20.000 Unita Scanned with CamScanner4. Fixed Cost increases by 20% and Variable Cost decreases by 10% : a FC (new) =% 40,000 + 20% of t 40,000 =% 48,000 VC (new) =% 5 - 10% of & 5=% 4.5 B.E. P. (new) = __FC__ _ 48,000 _ 48,000 SP-V0~8-45° 35 ~ 1714 Units, Prohlem 27 Scanned with CamScanner10.10 Problem 29 i: Calculate B.E.P. from the following data : Selling Price (p.u.)- =10 Trade Discount . 5% Direct Material Cost (p.u.) t3 Scanned with CamScannerKK _ ! Direct Labour Cost (p.u.) Wy Fixed Overhead % 40,000 Variable Overhead 100% of Labour If sales are 10% and 15% above the B.E.P., determine the Net Profit. (Based on ICWA, Final) Solution B.E. P, (Unite) = ge - 40,000 _ _ 40,000 _ 4 999 Units 10 -7.5" “Working Note : 2 Marginal Cost = VC , . 10x58 | ‘Trade Discount “35 ) 05 Direct Materials 3.0 Direct Labour 2.0 Variable Overhead . 20 Contribution = SP - MC = 10-7.5=% 2.5 If sales are 10% above B.E.P. : New SP = 16,000 + 10% of 16,000 = 16,000 + 1,600 = 17,600 Units Profit = Contribution - FC * = 17,600 x 2.5 - 40,000 = € 44,000 ~ 40,000=% 4,000 — are 15% above B.E.P. : New SP = 16,000 + 15% of 16,000 = 16,000 + 2,400 = 18,400 Units Profit = Contribution - FC =f 18,400 x 2.5 - 40,000 = 46,000 - 40,000 = 6,000 Scanned with CamScanner