Multi-product BEP

Manaswee Ltd. manufactures and sells the following products as per sales mix giv en. The operating costs are also given. Products COMA 60 FA 65 BL 75 CTP 35 Total budgeted Operating cost as % of sales % of sales 30.00% 40.00% 20.00% 10.00% sales (100%) for one month is Rs.12,00,000.

The fixed cost is Rs.3,00,000 per month. Calculate the BEP for the company. If t he new sales mix is changed to 40%, 25%, 30% and 5% for COMA, FA, BL and CTP res pectively, what would be the BEP? CASE:2 Impact of changes in variables X Ltd. is operating at 75% capacity. The BEP of the company is Rs.3,00,000, PV r atio is 40% and margin of safety is Rs.1,00,000. The company is planning to incr ease the capacity to 90% with the following changes. 1. Reduce selling price by 5% 2. Reduce VC by 5% on sales 3. To expand, additional capital for additional plant of Rs.10,00,000 is re quired on which a flat interest of Rs.3,00,000 for a tenure of ten years will be paid to the money lenders. 4. Rate of depreciation is 10% and the company follows SLM. Required: 1. Sales required to earn Rs.5,00,000 additional profit after meeting the i nterest on capital. 2. New BEP, New PV ratio and the new margin of safety. CASE:3 Tender acceptance Capacity(Units) 10,000 100 11,000 95 12,000 92 13,000 90 14,000 89 Unit cost (Rs.) Unit selling price (Rs.) 110 106 103

Present level of operation is 12,000 units. There is an offer to sale additional 2000 units at a price of Rs.72 per unit. Should you accept this offer?

CASE:4 Price quotation Praxis ltd. is presently operating at its normal capacity level of 75% and selli ng a product called MBA only inside Bukrahat. The present sales is Rs.7,50,000. This gives a profit margin of 20%. The direct cost is constant per unit. The bud geted indirect expenses are given as under. Indirect costs 75,000 units (75%) 90,000 units (90%) 1,00,000 units ( 100%) Variable 1,50,000 1,80,000 2,00,000 Fixed 75,000 75,000 75,000 Semi-variable 75,000 90,000 1,00,000 [Amounts in rupees] An export order is there for 25% capacity. The additional shipment cost of this

order will be Rs.10,000. What price you will quote if the desired profit on price is 10%. CASE:5 Limiting factor Wonder Ltd. produces three products from a raw material, which is in short suppl y due to import restrictions. The cost details per unit is as under. Product X Product Y Product Z Sale value 300 400 350 Direct material 75 120 90 Direct labour @ Rs.10 per labour hour 80 100 110 Variable overheads 50 80 70 60% of the material is imported @ Rs.6 per kg. If imported material is in short supply, find out the profitability of the products. Would your choice be differe nt if capacity is the key factor? If the market demand for the products is 1000, 1,200 and 1250 units per annum respectively and total Raw material available is 20,000 kgs of imported raw material per annum, how profit can be maximized?

CASE: 6 Filiance Industries Ltd. has got two plants, one at Thakurpukur and the other at Raspunja whose budgeted cost and revenue details per month are as under. Thakurpukur Raspunja Production (kgs.) 1,00,000 75,000 Variable cost 2,98,000 2,81,250 Fixed cost 1,53,500 91,000 Sales 7,00,000 5,25,000 Profit 2,48,500 1,52,750 The low profit margin from Raspunja plant is bothering the management. They are planning to increase production of Thakurpukur plant by 50%, which can be achiev ed without any increase in capacity and manpower. However, additional incentive @Rs.0.50 per kg has to be paid to the employees for the additional production. A dditional fixed expenses of sales at Thakurpukur to be incurred for additional p roduce is Rs.10,000. The alternatives before management are 1. Cut production at Raspunja by 25,000kgs. and increase Thakurpukurâ s producti on by 25,000 kgs. 2. Cut production at Raspunja by 50,000kgs. and increase Thakurpukurâ s producti on by 50,000kgs. Which alternative you would advise? Any loss at Raspunja would demoralize the em ployees and might result in skilled labour turnover. CASE:7 Hunda ltd. produces 50,000 steering wheels for Goonda ltd. The steering wheels a re sold to Goonda @Rs.220 per unit. The variable cost is 90%. The annual fixed c ost of Hunda ltd. is Rs.14 lacs. The current capacity utilization is 50%. Hondo Ltd. from Uganda is asking for 30,000 steering wheels. Determine the FOB price,

if the following advantages accrue to you, so that at least the BEP is attained in case the license is sold and in case the license is used. 1. 10% cash assistance of FOB value as export incentive. 2. 5% duty drawback on FOB value 3. Import license to the extent of 10% of FOB value. It can be sold in the market at 100% premium or used for import of material, which will yield 30% prof it on cost.

CASE: 8 Product mix The present turnover of a company is Rs.18 crores. The company earns a profit of 10% before depreciation and interest which together work out to Rs.2 crores fix ed per annum. The present mix of the four products sold by the company and other details are a s under. Products Sales mix PV ratio Material cost as % of sales valu e A 10 30 50 B 30 20 40 C 25 40 60 D 35 10 45 In the next year the cost of material will increase by 10%. The import license f or raw material is Rs.1100 lacs. To off set the increased cost of material, the company is planning to change the product mix. The market can absorb 35% of tota l sales for each of the products except C. Assuming no inventory position, find out the most profitable product mix. CASE: 9 Praxis is planning to purchase new copiers in its library. The final choice has to be made from the following three machines. The cost of operation of the three machines is as under. Super fast Express Speed Lightening Toner cost per 1000 pages 700 500 300 Labour cost per 1000 pages 900 300 250 Annual depreciation 25,000 60,000 1,00,000 Compute the cost indifference point for all the alternatives. What is your sugge stion thereafter? If the expected volume of operation next year is 90,000 pages, which machine would you recommend? CASE: 10 Make or buy The cost of manufacture of a product is as under: Prime cost = Rs.20 Variable overhead = Rs.10 Fixed overhead = Rs.5 Total cost= Rs.35 The product can be purchased from outside at Rs.33 per unit. Should it be produc

ed or bought? CASE: 11 Make or buy A component of a product is currently purchased from market @ Rs.20 per unit. Th e supply is not regular. To overcome the problems of erratic supply of material, two proposals are under consideration. 1. Buy machine no. 1 with annual fixed cost of Rs.12 lacs and per unit vari able cost of Rs.12. 2. Buy machine 2 with annual fixed cost of Rs.18 lacs and variable cost of Rs.10 per unit. At what volume of output, you would like to move from purchase to machine 1 and machine 2. What is the volume required to purchase machine 2 compared to machine 1? If the next yearâ s volume is 2 lac units, which machine would be recommended? What i f the annual requirement grows very fast after the initial year?

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