Project Management

Assignment
CM1
Group No.-7
1) Satyam Anand-
(19MBARO628)
2) Akash Dey
3) Jeevan
4) Ann Antony
5) Jeshwanth
6) Abin Shaju
(19MBAR0374)
7) Sivaraj Singh
Problem 1: A gear manufacturing company sells gears at a selling price of Rs. 250 per unit. The
company has fixed cost commitment of Rs. 20 lakhs and variable cost of Rs. 125 per unit.
Determine,
A. The break-even sales quantity
B. The break-even sales
C. Contribution

D. The margin of safety if the actual production quantity is 60,000 units

Solution
Given that,
FC = Rs. 20,00,000
VC= Rs. 125/unit
P= Rs. 250/unit
1. Break even quantity
We have, QBEP

=(FC)/(P-V)=(20,00,000)/(250-125)=16000
2.Break-even sales
= QBEP x P
= 16,000 x 250 =40,00,000.
 3.Contribution
C = (P – V) Q
= (250 -125) 60000
= Rs. 75,00,000
4.Margin of safety
= Sales revenue – BEP sales
= P x Q – QBEP x P
= P (Q – QBEP)
= 250 (60,000 – 16000)
=Rs. 110,00,000
Problem2: A cashew nut processing plant has fixed cost of Rs. 10,00,000, variable
cost per unit of Rs. 100 per kg and selling price of Rs. 500 per kg. Find the break-
even level of output. What should be level of output if the owner wants to earn a
profit of Rs. 6,00,000 in a year?
• Given :
• Fixed cost(FC) = Rs.10,00,000
• Variable Cost(VC)= Rs.100 per kg
• Selling Price (SP) = Rs.500 per kg
• Profit to be earned = 6,00,000
• Breakeven quantity
• Q = FC / SP –VC
• Q= 10,00,000/500-100
• Q=10,00,000/400
• Q= 2500
• If profit =Rs.6,00,000
• Then Q = FC+ Profit / SP – VC
• Q = 10,00,000+6,00,000/500-100
• Q=16,00,000/400
• Q=4,000 kgs
• So , in order to earn Rs. 6,00,000 as profit , they must
produce 4000 kgs of cashew
 Q No.-3 Solution:
A. Decision Of Company
Total cost/yr for process A
TC = FC + VC x Q
= 1,00,000 + 75 x 10,000 = Rs. 8,50,000
Total cost/yr for process B
TC = 3,00,000 + 70 x 10,000 = Rs. 10,00,000
Total buying cost/yr
= 80 x 10,000 = Rs. 8,00,000
Since the total buying cost is less than the other two options,
the company should buy the product.
B. Annual Volume for switching from buying to making using
process A
Let, Q = quantity the company wishes to produce using process A then, total annual
cost of process A
≤ total buying cost/yr
i.e., 1,00,000 + Q × 75 ≤ Q × 80
Q ≥ 20,000 units
Thus, if the requirement is more than 20,000 unit the company
Should produce using process A.
C. Annual volume for change over from process A to process
B.
If the company prefers to process B instead of process A, then
Total annual cost of B ≤ total annual cost of A
i.e., 3,00,000 + 70 × Q ≤ 1,00,000 + 75 × Q
i.e., 2,00,000 ≤ 5 ×Q
Or Q ≥ 40,000 units