CVP Analysis: sheet2

Q1. Asian Industries Ltd. specialises in the manufacture of small capacity motors. The cost
structure of a motor is as under: Material, Rs50; Labour, Rs80; Variable overheads, 75 per
cent of labour cost. Fixed overheads of the company amount to Rs2.40 lakh per annum. The
sale price of the motor is Rs230 each. (a) Determine the number of motors that have to be
manufactured and sold in a year in order to break-even. (b) How many motors have to be
made and sold to make a profit of Rs1 lakh per year? (c) If the sale price is reduced by Rs15
each, how many motors have to be sold to break-even?

Q2. You are given the following information: Output and sales (10,000 units) Rs2,00,000
Variable costs per unit 12 Fixed cost 40,000 It is proposed to reduce the selling price by 10
per cent. (a) Calculate present and future profit—volume ratio (b) Calculate present and
future break—even points and (c) Compute the sales volume to maintain the profit at the
present level
Q3. From the following information, find (a) BEP in rupees, and (b) number of units to be
sold to earn a net income of 10% of sales: Selling price Rs20 per unit Variable cost 12 per
unit Fixed cost Rs2,40,000

Q4. For two periods sales and profits were as under

Period I Period II
Sales Rs4,00,000 Rs5,00,000
Profit 1,00,000 1,40,000
Find (a) BESR, (b) Sales for a profit of Rs2,00,000, (c) Profit when sales are Rs6,00,000,
and (d) Margin of safety when profit is Rs50,000.
Q5. Two companies P Ltd. and Q Ltd. producing and selling similar products forecasted
their Profits and Loss a/c for the next year, which is as follows: P Ltd. Q Ltd. Sales
Rs3,00,000 Rs3,00,000 Less: Variable Cost Rs2,00,000 Rs2,25,000 Fixed Expenses 50,000
2,50,000 25,000 2,50,000 Estimated Profit 50,000 50,000 Calculate: (a) P/V ratio, break-
even point, and margin of safety for both the companies. (b) Sales required to earn a profit of
Rs30,000 for both companies. (c) Under the following situations, which company will show
better results (i) Increase in sales (ii) Decrease in sales

Q6. PQR Ltd. has furnished the following data for the two years:
Year I Year II
Sales Rs8,00,000 ?
Profit/volume ratio (P/V ratio) (%) 50 37.5
Margin of safety sales as a % of total sales 40 21.875
There has been substantial savings in the fixed cost in the year 2 due to the restructuring
process. The company could maintain its sales quantity level of year 1 in year 2 by reducing
selling price. You are required to calculate the following: (i) Sales for year 2 (ii) Fixed cost
for year 2 (iii) Break-even sales for year 2