Planning through Break-Even Analysis

Case I

The Champion Cola SoIt Drinks Ltd. provides you the Income Statement Ior the
year ending on 31
st
March 2008.

Income Statement

Sales ( 20000 bottles Rs.25 each) Rs.500000
Variable cost Rs.300000
Fixed cost Rs.100000 400000
ProIit beIore Tax 100000
Less tax 35000
ProIit aIter tax 65000


1.You are required to calculate the Break- Even Point both in units and amount.

2.Managmenrt is planning to expand the capacity oI the bottling plant .The
expansion will result in an increase in Iixed cost oI Rs.50000 and an increase in
earning capacity by 60.What would be the Iigures Ior new Break-Even Point?

3. Management wants to know that what sales volume is required to enable the
company to maintain existing pre-tax proIit and at least Rs.10000 (Pre tax proIit)
on new investment.






Case II


A Hill Top Ltd. Company has a standalone Hotel cum Recreational Center at
Narkanda near Simla ,in Himachal Pradesh. Every year company expects a tourist
season oI 200 days. The hotel complex has 100 rooms, a Restaurant and a
Shopping Complex. In the coming tourist season the management expects 70
occupancy oI the rooms.
All the rooms would be rented Ior Rs.1000 per day Ior two persons. The manager
Irom his past experience inIormed that each person staying in the hotel spends
Rs.250 per day Ior shopping in the shopping complex owned by the hotel and
Rs. 500 in the Restaurant oI the hotel. The recreational Iacilities provided by the
hotel are complimentary.

The cost data as supplied by the hotel management are:
Variable Cost to Volume Ratio
Shopping Complex Restaurant
Cost oI goods sold 50 25
Supplies 5 15
Others 5 15
The Variable Costs are Rs.200 per day per occupied room, Ior cleaning, laundry
and other utilities. Total Iixed costs Ior the hotel complex are Rs.100 Lakhs per
year.
The management wants to know the proIit based on the given inIormation.
The management is Iacing a competition Irom other hoteliers and plans to reduce
the room tariII by 20 and expecting a room occupancy to go up to 90.
Would you endorse the plan oI the management and why?