Q1.

From the following data Calculate BEP

Direct material per unit = Nu. 3
Direct labor per unit = Nu. 2
Fixed overhead (total) = Nu. 10,000
Variable overhead = 100% on direct labor
Selling price per unit = Nu. 10
Trade discount = 5%
Also, determine the net profits if sales are 10% above BEP
Solution:
Net selling price = 9.5
Direct material = Nu 3
Direct labor= Nu. 2
Variable cost = Nu. 2
Therefore, total variable cost = Nu. 7
Contribution = selling price – total variable cost
= 9.5 – 7
= Nu. 2.5
Hence, BEP (in unit) = FC/ CONTRIBUTION
=10,000/2.5
= 4,000 units
BEP (in Nu.) = 4000 * 10
= Nu. 40,000
Less 5% discount = 40000-(40000*5%)
Value at BEP = 40000-2000
= Nu. 38000
When Sales at 10% above BEP
Sales = 4000+10%
= 4400 units
Contribution = 4400*2.5
= Nu. 11000
Fixed cost = Nu. 10000
Therefore, profit = Contribution – Fixed cost
= 11000 – 10000
= Nu. 1000
Q2. Calculate the margin of safety in each of the following ID Situation
1. BEP = 40%, Actual sale Nu. 40,000
2. Actual sales 40,000 units, BEP 25,000 units
3. BEP 75%
4. CVP ratio= 40%, Profit NU.35000
5. Contribution per unit NU. 20, profit Nu. 15,000
Solution:
1. Margin of safety= sales-sales at BEP
= 40,000 – 40%*40,000
= 40,000 – 16,000
= Nu. 24,000
2. Marginal of safety= Sales-sales at BEP
= 40,000-25000
= 15,000
3. Margin of safety= 100- BEP
=100% - 75%
= 25%
4. Marginal of safety= Profit/ Pv ratio
= 35,000/ 40%
= Nu. 87,500
5. Margin of safety= PV/ Contribution
= 15,000/20
= 750 units.
Question 3
ABC co. ltd has to choose between machine X and Y

Particulars Machine A Machine B

Output per 10,000 10,000

Profit above level 30,000 24,000

Fixed cost per annum 30,000 16,000

Compute the following:

i. BEP of the two machines
ii. Level of output where the two machines are equally profitable
iii. The machine suitable for a different level of output of the product
Solution:

Break-even of machine A:
Contribution= Fixed cost + Profit
= 30,000+30,000 Break-even of machine B:
= 60,000 Contribution= Fixed cost + Profit
CMR = Contribution/ sales = 24,000+16,000
= 60,000/ 10,000 = 40,000
= Nu. 6 CMR = Contribution/ sales
BEP of machine A= FC/ CMU = 40,000/ 10,000
= 30,000/ 6 = Nu. 4
= 5000 units BEP of machine A= FC/ CMU
= 16,000/ 4
= 4000 units
Cost different point = Different in F.C/ Different in contribution per unit
Different in F.C = 30,000 – 16,000
= Nu. 14,000
Different in Contribution per unit = 6 – 4
= 2 units
Therefore, Cost difference = 14,000/ 2
= 7,000 units.
Question 4
ABC sells wedding dresses. The cost of each dress is comprised of the following:
Selling price = Nu. 1,000
Variable cost = Nu. 400
Total fixed cost = Nu. 90,000
a. What is the contribution margin per unit?
b. What is ABC company’s total profit when 200 dresses are sold?
c. How many dresses must ABC Co. sell to reach the break-even point?
d. How many dresses must ABC co. sell to yield a profit of Nu. 60,000?
Solution:
a. Contribution Margin Per unit = selling price – variable cost
= 1,000 – 400
= Nu. 600
b.
Particulars Amount Amount

Revenue 200*1,000 200,000

Less: Variable cost 200*400 80,000

Contribution 120,000

Less: Fixed cost 90,000

Total Profit 30,000

c. BEP (units) = FC/ Contribution margin

= 90,000/ 600
= 150 dresses.
BEP (value) = 150*1000
= Nu. 150,000
 d. Target Profit = Nu. 60,000
BEP = FC+TP/ CM OR sales – variable-FC = Profit
= 90,000+60,000/ 600 1000X-400X-90,000=60,000
= 250 dresses. 600X=150,000
X= 150,000/ 600
= 250 dresses.
Question 5
The following information is extracted by the financial analyst from the book of a manufacturing
company:
Particulars Amount Amount
Sales 1,000,000 1,000,000

Variable cost:

Direct material 300,000

Direct Labor 300,000
Factory Overhead 80,000

Marketing Expenses 70,000

Administration Expenses 50,000 800,000

Contribution 200,000

Fixed Cost:

Factory overhead 50,000

Marketing expenses 30,000

Administration expenses 20,000 100,000
Profit 100,000

You are required to compute the following:

 i. PV ratio and BEP
ii. The proposal has been made to increase the fixed asset cost by Nu. 10,000, sales and
variable cost remain the same. Compute the new BEP
iii. The company is also considering another proposal of the modernize its existing plant.
This will help additional fixed cost of Nu. 25,000 with the expectation of saving the
same amount in each of the direct material and labor costs. If this proposal is
undertaken, then compute:
a. PV ratio
b. BEP
c. Profit of the company.

Solution:

i. PV ratio= contribution/ sale*100

= 200,000/ 1,000,000*100
= 20%
BEP= FC/ PV
= 100,000/ 20%
= Nu. 500,000
ii. Total fixed cost = old-fixed cost + increased cost
= 100,000 + 10,000
= 110,000
therefore, BEP = New fixed cost/ CMR
= 110,000/ 20%
= Nu. 550,000
iii. New FC = 100,000 + 25,000
= 125,000
New Direct material = 300,000 – 25,000
= 275,000
New labor cost = 300,000 – 25,000
= 275,000
A. New variable cost = 275,000+275,000+80,000+70,000+50,000
=Nu. 750,000
New contribution = 1000,000-750,000
= Nu. 250,000
therefore, PV ratio = 250,000/ 1000,000*100
= 25%
B. BEP = FC/ PV
= 125,000/ 25%
= Nu. 500,000
C. Profit = Contribution – FC
= 250,000 – 125,000
= Nu. 125,000
QUESTION 6
Northenscold Company sells several products. Information of average revenue and costs
are as follows:
Selling price per NU 20.00
Variable costs per unit:
Direct material NU 4.00
Direct manufacturing labor NU 1.60
Manufacturing overhead NU 0.40
Selling costs NU 2.00
Ammal fixed costs NU 96,000

i. Calculate the CM
ii. Calculate the number of units the co. must sell each year to BE
iii. Calculate the number of units the company must sell to yield a profit of Nu. 144000
iv. The co. is thinking of expanding its business, increasing its fixed cost by 20,000. If this
expansion is granted, then compute Pv ratio and BEP
Solution:

i. CM = Sales – Variable cost

= 20 – (4+1.60+0.40+2)
= 12
ii. BEP= FC/ CM
= 96,000/ 12
=8000 units
iii. Target profit= FC + TP/ CM
= 96,000+144000/ 12
= nu. 20,000
iv. New FC = 96,000+20,000
= 116,000
PV ratio = CM/ sales*100
= 12/ 20*100
= 60%
BEP = FC/ PV
= 116,000/ 60%
= 193,333.333