1. Sachin makes exotic samosa which are loved and appreciated by everyone.

He is
often told by friends that he could make pots of money if he were to start a business
supplying samosas to offices or for parties. In order to make up his mind Sachin wants
to first know the break-even point of the business. Let's say Sachin decides to price a
plate samosa of at 30. The variable cost per plate (that is the cost of Maida and other
ingredients) works out to 10. Same would also have to incur a fixed cost per month
(towards rent of the place to be used for business, staff salaries and so on) of 12,000.

1. Calculate BEP
2. If he sells, say, 600 plates in a month, how much profit does he make?
3. He reduces the selling price to Rs.20 while keeping the variable cost constant at
Rs. 10 in order to achieve the desired profit of Rs. 50,000. How much does he
need to sell?
2. Consider the following information about three different businesses X, Y and Z as
shown here:

X Y Z
Selling price per unit 300 300 300
Variable cost per
unit 60 90 120
Fixed Cost 40,000 40,000 40,000
Required: Calculate in each scenario as follows:
The break-even point
The profit on a sale of 500 units. What does P/V ratio indicate?
The sales required to generate a profit of 100,000

Ratio Analysis

Profitability Ratios

Ratio Numerator Denominator

Return on Equity Profit after Tax Average Shareholder's Equity

Return on Sales or Profit Margin Profit after Tax Sales

Asset Turnover Sales Average Total Assets
Return on Assets Profit after Tax Average Total Assets

Leverage – Measure 1 Average Total Assets Average Shareholder's Equity

Return on Net Operating Assets Net Operating Profit Average Net Operating Assets
Weighted Average Shares
Earnings per Share Profit after Tax Outstanding

Gross Profit Ratio = Gross profit / Sales

Net Profit Ratio = Net profit /Sales