There is boy who is doing the business of trade in lemons.

He bought 1000 dozons of

lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He has a fixed cost of Rs. 3000 during the peirod.
Find out what was his profit.
Note: Represent your workings in the form of marginal cost statement.
 Statement of Marginal Cost
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
There is boy who is doing the business of trade in lemons. He bought 1000 dozons of
lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He earned a profit of Rs. 1000 during the peirod.
Find out what was his fixed cost.

sale
va
contri
fc
pro
 Statement of Marginal Cost
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (a-b-c = b/f) 3000
Operating Profit (c) 1000

14000
10000
4000
3000
1000
There is boy who is doing the business of trade in lemons. He bought 2000 dozons of
lemons during the last period @Rs. 20 per dozen and sold those lemons @Rs. 28 per
dozon. He earned a profit of Rs. 2000 during the peirod.
Find out what was his fixed cost.
56000
40000
16000
 Statement of Marginal Cost
Rupees
Particulars Units
Per Unit Total
Sales (a) 2000 28 56000
Less: Variable Costs (b) 2000 20 40000
Contribution (a-b) 2000 8 16000
Less: Fixed Costs (a-b-c = b/f) 14000
Operating Profit (c) 2000
There is boy who is doing the business of trade in lemons. He bought 1000 dozons
and sold those lemons @Rs. 14 per dozon. He earned a profit of Rs. 1000 during the
period. In the next period he bought 2000 dozens and sold those lemons@ Rs. 14.
He ended up earning a profit of Rs. 5000.
Find out what was his fixed cost and variable cost. Also Find P/V Ratio.
 Statement of Change Analysis
Rupees
Particulars
Current Peiod Past Period Change
Sales (a) 28000 14000 14000
Operating Profit (c) 5000 1000 4000
P/V Ratio (Change in c / Change in a) 28.57% Item
Sales
V.C.
C
Statement of Marginal Cost for Current Period
Rupees
Particulars Units
Per Unit Total
Sales (a) 2000 14 28000
Less: Variable Costs {a*(100-p/v R)} 2000 10 20000
Contribution (a*p/v R) 2000 4 8000
Less: Fixed Costs (a-b-c) 3000
Operating Profit (c) 5000
P/V Ration = Contri / Sales 28.57%

Statement of Marginal Cost for Past Period

Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%
Amount Ratio Percentage
200 Sales Ratio 100%
140 V.C. Ratio 70% 70% 70%
60 P/V Ratio 30% 30% 30%
There is boy who is doing the business of trade in lemons. He bought 2000 dozons
and sold those lemons @Rs. 20 per dozon. He earned a profit of Rs. 2000 during the
period. In the next period he bought 4000 dozens and sold those lemons@ Rs. 20.
He ended up earning a profit of Rs. 10000.
Find out what was his fixed cost and variable cost. Also Find P/V Ratio.
 Statement of Change Analysis
Rupees
Particulars
Current Peiod Past Period Change
Sales (a) 80000 40000 40000
Operating Profit (c) 10000 2000 8000
P/V Ratio (Change in c / Change in a) 20.00% Item
Sales
V.C.
C
Statement of Marginal Cost for Current Period
Rupees
Particulars Units
Per Unit Total
Sales (a) 4000 20 80000
Less: Variable Costs {a*(100-p/v R)} 4000 16 64000
Contribution (a*p/v R) 4000 4 16000
Less: Fixed Costs (a-b-c) 6000
Operating Profit (c) 10000
P/V Ration = Contri / Sales 20.00%

Statement of Marginal Cost for Past Period

Rupees
Particulars Units
Per Unit Total
Sales (a) 2000 20 40000
Less: Variable Costs (b) 2000 10 20000
Contribution (a-b) 2000 10 20000
Less: Fixed Costs (c) 6000
Operating Profit (a-b-c) 2000
P/V Ratio = Contri / Sales 50.00%
Amount Ratio Percentage
200 Sales Ratio 100%
140 V.C. Ratio 70% 70% 70%
60 P/V Ratio 30% 30% 30%
There is boy who is doing the business of trade in lemons. He bought 1000 dozons of
lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He has a fixed cost of Rs. 3000 during the peirod.
Find out what was his profit and P/V Ratio.
 Statement of Marginal Cost
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%
There is boy who is doing the business of trade in lemons. He bought 3000 dozons of
lemons during the last period @Rs. 12 per dozen and sold those lemons @Rs. 20 per
dozon. He has a fixed cost of Rs. 5000 during the peirod.
Find out what was his profit and P/V Ratio.
 Statement of Marginal Cost
Rupees
Particulars Units
Per Unit Total
Sales (a) 3000 20 60000
Less: Variable Costs (b) 3000 12 36000
Contribution (a-b) 3000 8 24000
Less: Fixed Costs (c) 5000
Operating Profit (a-b-c) 19000
P/V Ratio = Contri / Sales 40.00%
There is boy who is doing the business of trade in lemons. He bought 1000 dozons of
lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He has a fixed cost of Rs. 3000 during the peirod.
Find out what was his profit and P/V Ratio. Also find break even point and Margin
of Safety.
 Statement of Marginal Cost at Present Sale Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost at Break Even Sale Level

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 750 14 10500
Less: Variable Costs (d-c) 750 10 7500
Contribution (c= a+b) 750 4 3000
Less: Fixed Costs (b) 3000
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 28.57%
 Analysis through Formula
Particulars Total Amount Per Unit Amount
Sales 14000 14
Less: Variable Costs (b) 10000 10
Contribution (a-b) 4000 4
P/V Ratio = Conribution / Sales 28.57% 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
BEP in Units = Fixed Cost / Contribution Per Unit 750
BEP in Units = BEP in Rupees / S.P. Per Unit 750
Margin of Safety = Present Sales - BEP Sales 3500 250
Margin of Safety in Rs. = Profit / p/v Ratio 3500
Margin of Safety in Units = Profit / contribution per unit 250
Margin of Safety in Rs. = Margin of Safety in Units*S.P. Per Unit 3500
Margin of Safety in Unit = Margin of Safety in Rs./S.P. Per Unit 250
There is boy who is doing the business of trade in lemons. He bought 2000 dozons of
lemons during the last period @Rs. 18 per dozen and sold those lemons @Rs. 30 per
dozon. He has a fixed cost of Rs. 10000 during the peirod.
Find out what was his profit and P/V Ratio. Also find break even point and Margin
of Safety.
 Statement of Marginal Cost at Present Sale Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 2000 30 60000
Less: Variable Costs (b) 2000 18 36000
Contribution (a-b) 2000 12 24000
Less: Fixed Costs (c) 10000
Operating Profit (a-b-c) 14000
P/V Ratio = Contri / Sales 40.00%

Statement of Marginal Cost at Break Even Sale Level

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 833.3333 30 25000
Less: Variable Costs (d-c) 833.3333 18 15000
Contribution (c= a+b) 833.3333 12 10000
Less: Fixed Costs (b) 10000
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 40.00%
 Analysis through Formula
Particulars Total Amount Per Unit Amount
Sales 60000 30
Less: Variable Costs (b) 36000 18
Contribution (a-b) 24000 12
P/V Ratio = Conribution / Sales 40.00% 40.00%
Fixed Cost 10000
BEP in Rupees = Fixed Cost / p/v Ratio 25000
BEP in Units = Fixed Cost / Contribution Per Unit 833.33333333333
BEP in Units = BEP in Rupees / S.P. Per Unit 833.33333333333
Margin of Safety = Present Sales - BEP Sales 35000 1166.6666666667
Margin of Safety in Rs. = Profit / p/v Ratio 35000
Margin of Safety in Units = Profit / contribution per unit 1166.6666666667
Margin of Safety in Rs. = Margin of Safety in Units*S.P. Per Unit 35000
Margin of Safety in Unit = Margin of Safety in Rs./S.P. Per Unit 1166.6666666667
There is boy who is doing the business of trade in lemons. He bought 1000 dozons
and sold those lemons @Rs. 14 per dozon. He earned a profit of Rs. 1000 during the
period. In the next period he bought 2000 dozens and sold those lemons@ Rs. 14.
He ended up earning a profit of Rs. 5000.
Find out what was his fixed cost and variable cost. Also Find P/V Ratio. Find what is
BEP?
 Statement of Change Analysis
Rupees
Particulars
Current Peiod Past Period Change
Sales (a) 28000 14000 14000
Operating Profit (c) 5000 1000 4000
P/V Ratio (Change in c / Change in a) 28.57%

Statement of Marginal Cost for Current Period

Rupees
Particulars Units
Per Unit Total
Sales (a) 2000 14 28000
Less: Variable Costs {a*(100-p/v R)} 2000 10 20000
Contribution (a*p/v R) 2000 4 8000
Less: Fixed Costs (a-b-c) 3000
Operating Profit (c) 5000
P/V Ration = Contri / Sales 28.57%

Statement of Marginal Cost for Past Period

Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost at BEP Sales Level

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 750 14 10500
Less: Variable Costs (d-c) 750 10 7500
Contribution (c= a+b) 750 4 3000
Less: Fixed Costs (b) 3000
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 28.57%
There is boy who is doing the business of trade in lemons. His p/v Ratio is 28.57% &
Fixed Cost is Rs. 3000.
Find out what was his BEP?
 Analysis through Formula
Particulars Total Amount
P/V Ratio = Conribution / Sales 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
There is boy who is doing the business of trade in lemons. He bought @Rs. 10 per
dozen and sold those lemons @Rs. 14 per dozon. He has a fixed cost of Rs. 3000
during the peirod.
Find out what was his BEP?
 Analysis through Formula
Particulars Total Amount Per Unit Amount
Sales 14
10
4
P/V Ratio = Conribution / Sales 28.57% 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
BEP in Units = Fixed Cost / Contribution Per Unit 750
BEP in Units = BEP in Rupees / S.P. Per Unit 750
There is boy who is doing the business of trade in lemons. His p/v Ratio is 28.57% &
Fixed Cost is Rs. 3000.
Find out what was his BEP? What will be margin of saftey if profit is Rs. 1000
 Analysis through Formula
Particulars Total Amount
P/V Ratio = Conribution / Sales 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
Profit 1000
Margin of Safety in Rs. = Profit / p/v Ratio 3500
There is boy who is doing the business of trade in lemons. He bought @Rs. 10 per
dozen and sold those lemons @Rs. 14 per dozon. He has a fixed cost of Rs. 3000
during the peirod.
Find out what was his BEP? What is Margin of Safety in Units if Profit is Rs. 1000?
 Analysis through Formula
Particulars Total Amount Per Unit Amount
Sales 14
10
4
P/V Ratio = Conribution / Sales 28.57% 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
BEP in Units = Fixed Cost / Contribution Per Unit 750
BEP in Units = BEP in Rupees / S.P. Per Unit 750
Profit 1000
Marging of Safety in Units = Profit / contribution per unit 250
Margin of Safety in Rs. = Profit / p/v Ratio 3500
There is boy who is doing the business of trade in lemons. He bought 1000 dozons of
lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He has a fixed cost of Rs. 3000 during the peirod.
Find out what was his profit and P/V Ratio. Also find break even point and Margin
of Safety.
How much should he sell to earn a profit of Rs. 5000?
How much should he sell to earn a profit of 10% on sales?
 Statement of Marginal Cost at Present Sale Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost at Break Even Sale Level

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 750 14 10500
Less: Variable Costs (d-c) 750 10 7500
Contribution (c= a+b) 750 4 3000
Less: Fixed Costs (b) 3000
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost for Desired Sale Level in Amount

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 2000 14 28000
Less: Variable Costs (d-c) 2000 10 20000
Contribution (c= a+b) 2000 4 8000
Less: Fixed Costs (b) 3000
Operating Profit (Zero at BEP) (a) 5000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost at Present Sale in % (Check)

Rupees
Particulars Units
Per Unit Total
Sales (a) 1154 14 16153.85
Less: Variable Costs (b) 1154 10 11538.46
Contribution (a-b) 1154 4 4615.385
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1615.385
P/V Ratio = Contri / Sales 28.57%
 Analysis through Formula
Particulars Total Amount
Sales 14000
Less: Variable Costs (b) 10000
Contribution (a-b) 4000
P/V Ratio = Conribution / Sales 28.57%
Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Margin of Safety = Present Sales - BEP Sales 3500
Margin of Safety in Rs. = Profit / p/v Ratio 3500
Margin of Safety in Units = Profit / contribution per unit
Margin of Safety in Rs. = Margin of Safety in Units*S.P. Per Unit 3500
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 28000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Desired Profit Ratio
Sale for Desired Profit in Rupees = (Fixed Cost )/ (p/v Ratio - d/p Ratio) 16153.85
Sale for Desired Profit in Units = (Fixed Cost) / (Contribution Per Unit- Desired Profit PU)
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Per Unit Amount
14
10
4
28.57%

750
750
250

250

2000
2000
10.00%

1154
1154
There is boy who is doing the business of trade in lemons. He bought 1000 dozons of
lemons during the last period @Rs. 10 per dozen and sold those lemons @Rs. 14 per
dozon. He has a fixed cost of Rs. 3000 during the peirod.
Find out what was his profit and P/V Ratio. Also find break even point and Margin
of Safety.

How much should he sell to earn a profit of Rs. 5000 despite a hike of Rs. 1500 due
to sales promotion and a fall in per unit selling price and purchase price by 10%
and 5% respectively. What will be the change in P/V Ratio and BEP due to these
changes?
 Statement of Marginal Cost at Present Sale Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 1000 14 14000
Less: Variable Costs (b) 1000 10 10000
Contribution (a-b) 1000 4 4000
Less: Fixed Costs (c) 3000
Operating Profit (a-b-c) 1000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost at Break Even Sale Level before Changes

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 750 14 10500
Less: Variable Costs (d-c) 750 10 7500
Contribution (c= a+b) 4 3000
Less: Fixed Costs (b) 3000
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost for Desired Sale Level before Changes

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 2375 14 33250
Less: Variable Costs (d-c) 2375 10 23750
Contribution (c= a+b) 4 9500
Less: Fixed Costs (b) 4500
Operating Profit (Zero at BEP) (a) 5000
P/V Ratio = Contri / Sales 28.57%

Statement of Marginal Cost after Chages for Desired Profit

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 3064.516 12.6 38612.9
Less: Variable Costs (d-c) 3064.516 9.5 29112.9
Contribution (c= a+b) 0 3.1 9500
Less: Fixed Costs (b) 4500
Operating Profit (Desired) (a) 5000
P/V Ratio = Contri / Sales 24.60%

Statement of Marginal Cost after Chages for BEP

Rupees
Particulars Units
Per Unit Total
Sales (Contribution / p/v R) (d) 1451.613 12.6 18290.32
Less: Variable Costs (d-c) 1451.613 9.5 13790.32
Contribution (c= a+b) 0 3.1 4500
Less: Fixed Costs (b) 4500
Operating Profit (Zero at BEP) (a) 0
P/V Ratio = Contri / Sales 24.60%
 Analysis through Formula before Changes
Particulars Total Amount
Sales 14000
Less: Variable Costs (b) 10000
Contribution (a-b) 4000

P/V Ratio = Conribution / Sales 28.57%

Fixed Cost 3000
BEP in Rupees = Fixed Cost / p/v Ratio 10500
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Margin of Safety = Present Sales - BEP Sales 3500
Margin of Safety in Rs. = Profit / p/v Ratio 3500
Margin of Safety in Units = Profit / contribution per unit
Margin of Safety in Rs. = Margin of Safety in Units*S.P. Per Unit 3500
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 28000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit

Analysis through Formula after Changes

Particulars Total Amount
Sales
Less: Variable Costs (b)
Contribution (a-b)
P/V Ratio = Conribution / Sales

Fixed Cost
BEP in Rupees = Fixed Cost / p/v Ratio
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Per Unit Amount
14
10
4

28.57%

750
750
250

250

2000
2000

Per Unit Amount

12.6
9.5
3.1
24.60%

4500
18290.32
1451.61
1451.61
38612.90
3064.52
3064.52
Selling price per unit = Rs 50 Variable cost per unit = Rs 25 Fixed cost per annum =
Rs 40,000
The maximum capacity of the company is 30,000 units per year. You are required
to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 80,000 in the year.
4)  Calculate the MOS if the plant is operated at 20,000 units a year.
 Answers

Total Units
50.00% 50.00%
80000 1600
240000 4800
920000 18400
Statement of Marginal Cost at Given Capacity Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 20000 50 1000000
Less: Variable Costs (b) 20000 25 500000
Contribution (a-b) 20000 25 500000
Less: Fixed Costs (c) 40000
Operating Profit (a-b-c) 460000
 Analysis through Formula
Particulars Total Amount
Sales

P/V Ratio = Conribution / Sales

Fixed Cost 40000
BEP in Rupees = Fixed Cost / p/v Ratio 80000
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Desired Profit 80000
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 240000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Present Sales 1000000
Margin of Safety = Present Sales - BEP Sales 920000
Margin of Safety in Units = MOS in Rupees / Per Unit Selling Price
Per Unit Amount
50
25
25
50.00%

1600
1600

4800
4800

18400
Selling price per unit = Rs 120 Variable cost per unit = Rs 90 Fixed cost per annum =
Rs 2,40,000
The maximum capacity of the company is 50,000 units per year. You are required
to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 80,000 in the year.
Calculate the MOS if the plant is operated at 30,000 units a year.
 Answers

Total Units
25.00% 25.00%
960000 8000
1280000 10667
2640000 22000
Statement of Marginal Cost at Given Capacity Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 30000 120 3600000
Less: Variable Costs (b) 30000 90 2700000
Contribution (a-b) 30000 30 900000
Less: Fixed Costs (c) 240000
Operating Profit (a-b-c) 660000
 Analysis through Formula
Particulars Total Amount
Sales

P/V Ratio = Conribution / Sales

Fixed Cost 240000
BEP in Rupees = Fixed Cost / p/v Ratio 960000
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Desired Profit 80000
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 1280000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Present Sales 3600000
Margin of Safety = Present Sales - BEP Sales 2640000
Margin of Safety in Units = MOS in Rupees / Per Unit Selling Price
Per Unit Amount
120
90
30
25.00%

8000
8000

10667
10667

22000
Selling price per unit = Rs 50 Variable cost per unit = Rs 30 Fixed cost per annum =
Rs2,00,000
The maximum capacity of the company is 2, 00,000 units per year. You are
required to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 1,00,000 in the year.
4)  Calculate the MOS if the plant is operated at 50% 0f the capacity.

What will happen if the following changes are made?

Fixed cost increases by Rs 50,000. Variable cost is decreasing by Rs 5. You are
required to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 1, 00,000 in the year.
4)  Calculate the MOS if the plant is operated at 50% 0f the capacity.
 Answers

Total Units
40% 40%
500000 10000
750000 15000
4500000 90000
Statement of Marginal Cost at Given Capacity Level
Rupees
Particulars Units
Per Unit Total

Sales (a) 100000 50 5000000

Less: Variable Costs (b) 100000 30 3000000
Contribution (a-b) 100000 20 2000000
Less: Fixed Costs (c) 200000
Operating Profit (a-b-c) 1800000
 Analysis through Formula
Particulars Total Amount

Sales

P/V Ratio = Conribution / Sales

Fixed Cost 200000
BEP in Rupees = Fixed Cost / p/v Ratio 500000
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Desired Profit 100000
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 750000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Present Sales 5000000
Margin of Safety = Present Sales - BEP Sales 4500000
Margin of Safety in Units = MOS in Rupees / Per Unit Selling Price
Per Unit Amount

50
30
20
40.00%

10000
10000

15000
15000

90000
Selling price per unit = Rs 50 Variable cost per unit = Rs 30 Fixed cost per annum =
Rs2,00,000
The maximum capacity of the company is 2, 00,000 units per year. You are
required to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 1,00,000 in the year.
4)  Calculate the MOS if the plant is operated at 50% 0f the capacity.

What will happen if the following changes are made?

Fixed cost increases by Rs 50,000. Variable cost is decreasing by Rs 5. You are
required to calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 1, 00,000 in the year.
4)  Calculate the MOS if the plant is operated at 50% 0f the capacity.
 Statement of Marginal Cost at Given Capacity Level
Answers Rupees
Particulars Units
Per Unit Total
Total Units
50.00% 50.00% Sales (a) 100000 50 5000000
500000 10000 Less: Variable Costs (b) 100000 25 2500000
700000 14000 Contribution (a-b) 100000 25 2500000
4500000 90000 Less: Fixed Costs (c) 250000
Operating Profit (a-b-c) 2250000
 Analysis through Formula
Particulars Total Amount

Sales

P/V Ratio = Conribution / Sales

Fixed Cost 250000
BEP in Rupees = Fixed Cost / p/v Ratio 500000
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Desired Profit 100000
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio 700000
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Present Sales 5000000
Margin of Safety = Present Sales - BEP Sales 4500000
Margin of Safety in Units = MOS in Rupees / Per Unit Selling Price
Per Unit Amount

50
25
25
50.00%

10000
10000

14000
14000

90000
Selling price per unit = Rs 20 Variable cost per unit = Rs 14
Fixed cost per annum = Rs 7, 92,000
The maximum capacity of the company is 5, 00,000 units per year. You are required to
calculate
1)  Profit volume ratio
2)  Break even point
3)  Sales required earning a profit of Rs 80,000 in the year.
4)  Calculate the MOS.
5)  Calculate the requirement of sales revenue if profit required is 10% 0n the sales made.
 Answers

Total Units
30.00% 30.00%
2640000 132000
2906667 145333
1320000 66000
3960000 198000
Statement of Marginal Cost at Given Capacity Level
Rupees
Particulars Units
Per Unit Total
Sales (a) 198000 20 3960000
Less: Variable Costs (b) 198000 14 2772000
Contribution (a-b) 198000 6 1188000
Less: Fixed Costs (c) 792000
Operating Profit (a-b-c) 396000
 Analysis through Formula
Particulars
Sales

P/V Ratio = Conribution / Sales

Fixed Cost
BEP in Rupees = Fixed Cost / p/v Ratio
BEP in Units = Fixed Cost / Contribution Per Unit
BEP in Units = BEP in Rupees / S.P. Per Unit
Desired Profit
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio
Sale for Desired Profit in Units = (Fixed Cost + Desired Profit) / Contribution Per Unit
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Present Sales
Margin of Safety = Present Sales - BEP Sales
Margin of Safety in Units = MOS in Rupees / Per Unit Selling Price
Desired Profit Ratio
Sale for Desired Profit in Rupees = (Fixed Cost )/ (p/v Ratio - d/p Ratio)
Sale for Desired Profit in Units = (Fixed Cost) / (Contribution Per Unit- Desired Profit PU)
Sale for Desired Profit in Units = Sale for Desired Profit in Units / S.P. Per Unit
Total Amount Per Unit Amount
20
14
6
30.00%
792000
2640000
132000
132000
80000
2906667
145333
145333
3960000
1320000
66000
10.00%
3960000
198000
198000
 The following particulars are given about a manufacturing company.
sales
Year 2006 10000
year 2007 15000
Answers
You are required to calculate Year 2006
1)  Profit volume ratio 40.00%
2)  Break even point 0
3)  Sales required earning a profit of Rs 10,000 in the year. 10000
4)  Calculate MOS for both the years. 15000
company.
profit
4000
6000
Answers
year 2007
40.00%
0
0
10000
 Statement of Change Analysis

Particulars

Sales (a)
Operating Profit (c)
P/V Ratio (Change in c / Change in a)
Contribution
Fixed Cost (Contribution - Profit)
BEP in Rupees = Fixed Cost / p/v Ratio
Desired Profit
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio
Margin of Safety = Present Sales - BEP Sales
 Rupees
Current Peiod Past Period Change

15000 10000 5000

6000 4000 2000
40.00%
6000 4000
0 0
0 0
10000 10000
25000 25000
15000 10000
 The following particulars are given about a manufacturing company.

Sales Profit
year 2005 7000 1200
year 2006 9000 2400
Answers
You are required to calculate year 2005 year 2006
1)  Profit volume ratio 60.00% 60.00%
2)  Break even point 5000 5000
3)  Sales required earning a profit of Rs 10,000 in the year. 16667 16667
4)  Calculate MOS for both the years. 6000 4000
 Statement of Change Analysis

Particulars

Sales (a)
Operating Profit (c)
P/V Ratio (Change in c / Change in a)
Contribution
Fixed Cost (Contribution - Profit)
BEP in Rupees = Fixed Cost / p/v Ratio
Desired Profit
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio
Margin of Safety = Present Sales - BEP Sales
 Rupees
Current Peiod Past Period Change

9000 7000 2000

2400 1200 1200
60.00%
5400 4200
3000 3000
5000 5000
10000 10000
16667 16667
6000 4000
Break even sales Rs.1,60,000
Sales for the year 1987 Rs.2,00,000 Profit for the year 1987 Rs.12,000 Calculate
(a)  Profit or loss on a sale value of Rs.3,00,000
(b)  During 1988, it is expected that selling price will be reduced by 10%. What should be the sale if the com
Answers
42000
270000

Statement of Change Analysis

Particulars

Sales (a)
Operating Profit (c)
P/V Ratio (Change in c / Change in a)
Contribution
Fixed Cost (Contribution - Profit)
Desired Profit
Sale for Desired Profit in Rupees = (Fixed Cost + Desired Profit) / p/v Ratio
ent of Change Analysis
Rupees
1987 BEP Change Next Period % 1988 _% 1988
200000 160000 40000 300000 100 90
12000 0 12000 42000
30.00% 30 20 22.22%
60000 48000 90000
48000 48000 48000 48000
12000
270000
SV ltd a multi product company, furnishes you the following data relating to the year 1979.

Particulars First half of the year

Sales Rs.45,000
Total cost Rs40,000

Assuming that there is no change in prices and variable costs that the fixed expenses are incurred
equally in the two half year periods calculate for the year 1979
Calculate
(a)  PV ratio
(b)  Fixed expenses
(c)  Break even sales
(d) Margin of safety
data relating to the year 1979.
Statement of Change Analysis
Second half of the year
Particulars
Rs.50,000
Rs.43,000 Sales (a)
Total Cost (b)
that the fixed expenses are incurred
9 Operating Profit (a-b = c)
Answers P/V Ratio (Change in c / Change in a)
40.00% Contribution
26000 Fixed Cost (Contribution - Profit)
65000 BEP in Rupees = Fixed Cost / p/v Ratio
30000 Margin of Safety = Present Sales - BEP Sales
Statement of Change Analysis
Rupees
Second half of the year First half of the yearChange Full Year
50000 45000 5000 95000
43000 40000 83000

7000 5000 2000 12000

40.00%
20000 18000 38000
13000 13000 26000
32500 32500 65000
17500 12500 30000
From the under mentioned figures calculate: Answers
(i)       P/V ratio and the total fixed expense; 20.00% 5003.2
(ii)     Profit or loss arising from the sales of Rs. 12,000; -2603.2
(iii)  Sales required to earn a profit of Rs. 2,000; 35016
(iv)   Sales required to break-even. 25016

Paarticulars Sales Rs. Profit Rs.

First period 14,433 385
Second period 18,203 1,139
 Statement of Change Analysis
Rupees
Particulars
Second period First period
Sales (a) 18203 14433
Operating Profit (b) 1139 385
P/V Ratio (Change in c / Change in a)
Contribution 3640.6 2886.6
Fixed Cost (Contribution - Profit) 2501.6 2501.6
BEP in Rupees = Fixed Cost / p/v Ratio 12508 12508
Desired Profit
Sale for Desired Profit= Fixed Cost+DP / p/v Ratio
Rupees
Change Full Year Given Level DP Level
3770 32636 12000 35016
754 1524 -2603.2 2000
20.00%
6527.2 2400 7003.2
5003.2 5003.2 5003.2
25016
2000
35016
 The following is the cost structure of a product. Selling price Rs 100 per unit.

Variable cost per unit:-

Material Rs. 38
Laoour Rs. 14
Direct Expenses Rs. 8.

Fixed Overheads for the year:- Factory overheads Rs. 2,80,000 Office overheads Rs. 2,20,000

No of units produced & sold 40,000.

Calculate:
·         P/VRatio.
·         Break Even Points in Units.
·         Margin of Safety Amount.
·         Break Even Point if fixed overheads increased by 20%.
·   Revised P/V ratio when selling price increased by 20%.
 Statement showing Calculation work for Cost Elements
Particulars

Sales (a) Per Unit

Matetrial
Labour
Direct Ex;pesnses
Variable Costs (b) Per Unit
Conntribution (a-b) Per Unit

Answers Factory Overheads

40% Office Overheads
12500 Fixed Cost (c) In Total
2750000
15000
50% Analysis through Formula
P/V Ratio = Contribution / Sales
Break Even Point in Units = Fixed Cost / Contribution Per Unit
Margin of Safety = (Present Sales Level - BEP Level)*Selling Price Per Unit
Revised BEP = Revised Fixed Cost / Contribution Per Unit
Revised P/V Ratio = Revised Contribution / Revised Selling Price
k for Cost Elements
Rupees
Individual Total Revised
100 120
38
14
8
60 60 60
40 60

280000
220000
500000 500000 600000

mula
40%
12500
2750000
15000
50%
The ratio of variable cost to sales is 70%. The break-even point occurs at
60% of the capacity sales. Answers
Find this capacity sales when fixed costs are Rs. 90,000. 375000
Also compute profit at 75% of the capacity sales. 22500
 Percentage Analysis of Marginal Cost
Sales 100%
Variable Cost 70%
Contribution or P/V Ratio 30%

Workings
Fixed Cost 90000
BEP in Rs. = FC/ p/v Ratio 300000
BEP Capacity Level 60%
Full Capacity Sales in Rs. 500000
Profit Calcualtion at Capacity Level 75%

Statement of Marginal Cost at 75% Capacity Level

Sales (a) (500000*75%) 375000
Variable Cost (b) (375000*70%) 262500
Contribution (a-b) 112500
Fixed Cost (c) 90000
Profit (a-b-c) 22500
 Answers
From the following data, calculate Break-even point in Units. 40000
What will be the BEP if selling price is reduced by 10%? 50000

Fixed expenses:
Depreciation - Rs. 1,00,000 & Salaries - Rs. 1,00,000

Variable exp:
Material - Rs. 3 per unit Labour - Rs. 2 per unit
Selling price - Rs. 10 per unit
 Statement showing Calculation work for Cost Elements
Particulars Rupees
Individual
Sales (a) Per Unit
Matetrial 3
Labour 2
Variable Costs (b) Per Unit 5
Conntribution (a-b) Per Unit

Depreciation 100000
Salaries 100000
Fixed Cost (c) In Total 200000

BEP in Units = Fixed Cost / CPU

ents
Rupees
Total Revised
10 9

5 5
5 4

200000 200000

40000 50000
From the following data compute

1.      P/V Ratio

2.      B.E.P. in Rupees and in Unit.
3.      Number of Units to be sold to earn a profit of Rs. 7,50,000.

Sales Price.
Direct Material.
Direct Wages.
Variable Administrative Overheads
Fixed Factory Overhead.
Fixed Administrative Overheads.

Also calculate sales required to earn a profit of 10% of sale in terms of units.
 Answers
30%
2640000 132000
257000

Rs. 20 per Unit

Rs. 5 per Unit
Rs. 6 per Unit
Rs. 3 per Unit
Rs. 6,40,000 per year
Rs. 1,52,000 per year

198000
 Statement showing Calculation work for Cost Elements
Particulars Rupees
Individual Total
Sales (a) Per Unit 20
Matetrial 5
Labour 6
Variable Admin Overhead 3
Variable Costs (b) Per Unit 14 14
Conntribution (a-b) Per Unit 6

Fixed Factory Overhead. 640000

Fixed Administrative Overheads. 152000
Fixed Cost (c) In Total 792000 792000

Analysis through Formula

P/V Ratio = Contribution / Sales 30%
Break Even Point in Units = Fixed Cost / Contribution Per Unit 132000
Break Even Point in Rs = Fixed Cost / p/v Ratio 2640000
Desired Profit 750000
Sale in Units for DP = (FC+DP) / CPU 257000
Desired Profit % 10%
Desired Profit Per Unit 2
Sale in Units for DP% = FC / (CPU -DPPU) 198000
A factory engaged in manufacturing plastic buckets is working at 40% capacity and produces 10,000
buckets per annum.

The present cost break up for bucket is as under:

Material Rs.10
Labour Rs.3
Overheads Rs.5(60% fixed)

The selling price is Rs 20 per bucket

If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90 % capacity the
selling price falls by 5% accompanied by a similar fall in the prices of material.
You are required to calculate the profit at 50% and 90% capacities and also calculate break even
point for the same capacity productions. Answers
Profit 25000
BEP 132273
 Statement showing Calculation work for Cost Elements

Particulars Rupees
Individual Total
Sales (a) Per Unit 20
Matetrial 10
Labour 3
Variable Admin Overhead 2
Variable Costs (b) Per Unit 15 15
Conntribution (a-b) Per Unit 5

Fixed Cost (c) In Total 30000 30000

Answers
60000 Statement of Marginal Cost
142500 Capacity Levels 40% 50% 90%
Sales Units 10000 12500 22500
Fall in Sellilng Price 0% 3% 5.00%
Revised Selling Price in % 100% 97% 95%
Revised Selling Price Per Unit 20 19.4 19

Particulars Amount in Rupees at Different Capacites

Sales (a) 200000 242500 427500
Less: Variable Costs (b) 150000 187500 337500
Contribution (a-b) 50000 55000 90000
Less: Fixed Costs (c) 30000 30000 30000
Operating Profit (a-b-c) 20000 25000 60000

Formula Calculation
P/V Ratio 25.00% 22.68% 21.05%
BEP in Rs. = FC/pv Ratio 120000 132273 142500
BEP in Units = BEP in Rs / SP 6000 6818 7500
Indian plastics manufactures plastic buckets .an analysis of their accounts reveals the following details:

VC per bucket: Rs 20
Fixed cost: Rs 50,000 PER ANNUM.
CAPACITY: 2000 buckets
Selling price per unit: Rs 70

Required :
a)Find the BEP
b) Find the no of buckets to be sold to get a profit a profit of Rs 30,000.

c)If the company can manufacture 600 buckets more per year with an additional fixed cost of Rs
2,000,what should be the selling price to maintain the profit per unit as in point (b) above.
 Statement of Marginal Cost at Present Capacity Levels
Rupees
Particulars Units
Per Unit
Sales (a) 2000 70
Less: Variable Costs (b) 2000 20
Answers Contribution (a-b) 2000 50
Amount UNITS Less: Fixed Costs (c)
70000 1000 Operating Profit (a-b-c)
1600

18.75
Analysis throuh Formula
p/v Ratio = contribution / sales
BEP in rupees = FC/ pv Ratio
BEP in Units = FC/ CPU
Desired Profit
Sale for DP in Units = (FC+DP)/ CPU
acity Levels Statement of Marginal Cost at Desired Profit Capacity Levels
Rupees Rupees
Particulars Units
Total Per Unit Total
140000 Sales (a) 1600 70 112000
40000 Less: Variable Costs (b) 1600 20 32000
100000 Contribution (a-b) 1600 50 80000
50000 Less: Fixed Costs (c) 50000
50000 Operating Profit (a-b-c) 1600 18.75 30000
CHECK 1

71.43%
70000
1000
30000
1600
 Statement of Marginal Cost at Enhanced Capacity Levels
Stepts Rupees
Particulars Units
Per Unit Total
5 Sales (a+b+c) 2200 62.39 137250
4 Variable Costs (c) 2200 20 44000
3 Contribution (a+b) 2200 42.39 93250
2 Fixed Costs (b) 52000
1 Operating Profit (a) 2200 18.75 41250
 The following information in respect of Product ‘A’ and Product ‘B’ of JMR Ltd. is available.

Particulars Product ‘A’

Sale price Rs. 1000
Direct materials Rs. 400
Direct labor hours
20 hours
(Rs. 5 per hour)
Variable overheads 100% of direct wages
Fixed overheads for the company are Rs. 30,000
(i)                You are required to calculate the marginal product cost and contribution per u
(ii)              State which of the following alternative sales mixed would you recommend a
a.      100 units of Product ‘A’ and 50 units of Product ‘B’
b.      50 units of Product ‘A’ and 100 units of Product ‘B’
c.      150 units of Product ‘A’ only
d.      150 units of Product ‘B’ only
Product ‘B’ of JMR Ltd. is available.

Product ‘B’
Rs. 640
Rs. 400
20 hours
100% of direct wages Answers
Common A B
the marginal product cost and contribution per unit 600 400 40
alternative sales mixed would you recommend and why? Product Mix 3
d 50 units of Product ‘B’
100 units of Product ‘B’
 Statement of Marginal Cost and Contribution
Rupees in Per Unit Product Mix 1 Product Mix 2
Particulars
Product A Product B A Units B Units Total A Units
Sales (a) 1000 640

Direct Material Cost (b) 400 400

Direct Labour Cost (c) 100 100
Variable Overheads (d) 100 100
Marginal Product Cost (b+c+d) 600 600

Contribution (a-b-c-d) 400 40 100 50 42000 50

Fixed Overheads (e) 30000

Operating Profit (a-b-c-d-e) 12000

Note: Since Limiting factor is Sales Units, Hence the prodcut with highest contribution per unit should
 Product Mix 2 Product Mix 3 Product Mix 4
B Units Total A Units B Units Total A Units B Units Total

100 24000 150 0 60000 0 150 6000

30000 30000 30000

-6000 30000 -24000

contribution per unit should be sold most.

 The following information in respect of Product ‘A’ and Product ‘B’ of JMR Ltd. is available.

Particulars Product ‘A’

Sale price Rs. 1000
Direct materials Rs. 710
Direct labor hours
20 hours
(Rs. 5 per hour)
Variable overheads 100% of direct wages
Fixed overheads for the company are Rs. 8,000
(i)                You are required to calculate the marginal product cost and contribution per u
(ii)              State which of the following alternative sales mixed would you recommend a
a.      100 units of Product ‘A’ and 50 units of Product ‘B’
b.      50 units of Product ‘A’ and 100 units of Product ‘B’
c.      150 units of Product ‘A’ only
d.      150 units of Product ‘B’ only
Product ‘B’ of JMR Ltd. is available. Statement of Marginal Cost and Contribution
Rupees in Per Unit
Particulars
Product ‘B’ Product A Product B
Rs. 656 Sales (a) 1000 656
Rs. 376
Direct Material Cost (b) 710 376
20 hours
Direct Labour Cost (c) 100 100
100% of direct wages Variable Overheads (d) 100 100
Marginal Product Cost (b+c+d) 910 576
the marginal product cost and contribution per unit
alternative sales mixed would you recommend and why? Contribution (a-b-c-d) 90 80
d 50 units of Product ‘B’
100 units of Product ‘B’ P/V Ratio 9% 12%

Fixed Overheads (e)

Operating Profit (a-b-c-d-e)

Note: Since Limiting factor is Sales Units, Hence the pro

 Product Mix 1 Product Mix 2 Product Mix 3 Product Mix 4
A Units B Units Total A Units B Units Total A Units B Units Total A Units

100 50 13000 50 100 12500 150 0 13500 0

8000 8000 8000

5000 4500 5500

ales Units, Hence the prodcut with highest contribution per unit should be sold most.
Product Mix 4
B Units Total

150 12000

8000
4000
 The following information in respect of Product ‘A’ and Product ‘B’ of JMR Ltd. is available.

Particulars Product ‘A’

Sale price Rs. 1000
Direct materials Rs. 710
Direct labor hours
20 hours
(Rs. 5 per hour)
Variable overheads 100% of direct wages
Fixed overheads for the company are Rs. 8,000
(i)                You are required to calculate the marginal product cost and contribution per u
(ii)              State which of the following alternative sales mixed would you recommend a
a.      100 % Product ‘A’ and 0 % Product ‘B’
b.      50 % Product ‘A’ and 50 % Product ‘B’
c.      0 % Product ‘A’ and 100 % Product ‘B’
Subject to Maximum Sale of Rs. 164000
Product ‘B’ of JMR Ltd. is available. Statement of Marginal Cost and Contribution
Rupees in Per Unit
Particulars
Product ‘B’ Product A Product B
Rs. 656 Sales (a) 1000 656
Rs. 376
Direct Material Cost (b) 710 376
20 hours
Direct Labour Cost (c) 100 100
100% of direct wages Variable Overheads (d) 100 100
Marginal Product Cost (b+c+d) 910 576
the marginal product cost and contribution per unit
alternative sales mixed would you recommend and why? Contribution (a-b-c-d) 90 80
Product ‘B’
Product ‘B’ P/V Ratio 9% 12%
Product ‘B’
Fixed Overheads (e)
Operating Profit (a-b-c-d-e)

Note: Since Limiting factor is Sales Revenue, Hence

 Product Mix 1 Product Mix 2 Product Mix 3
A Units B Units Total A Units B Units Total A Units B Units Total
164 82 125 250

164 0 14760 82 125 17380 250 20000

8000 8000 8000

6760 9380 12000

is Sales Revenue, Hence the prodcut with highest p/v ratio should be sold most.
A manufacturer makes two products Luxury & Deluxe. The results for
2004 were as follows:

Particulars Luxury Deluxe

Sales 200,000 160,000
Variable cost 120,000 132,000
Fixed cost 40,000 32,000
Profit/loss 40,000 -4000

The managing director has suggested that Deluxe should be dropped as

it is making loss. It is estimated that Rs. 8000 will be saved in fixed
overheads if his suggestion is implemented. Should Deluxe be dropped
if:

a)  His decision has no effect on sales of Luxury

b)  By using the vacant factory space sales of luxury can be increased
by Rs. 100,000, the extra production would lead to increase in the total
fixed cost to Rs. 76,000.
 Statement of Marginal Cost at Present Capacity Levels
Rupees
Particulars
Luxury Deluxe Total
Sales (a) 200,000 160,000 360,000
Less: Variable Costs (b) 120,000 132,000 252,000
Contribution (a-b) 80000 28000 108000
Less: Fixed Costs (c) 40,000 32,000 72,000
Operating Profit (a-b-c) 40,000 -4,000 36,000
 (a) Statement of Marginal Cost when Drop of Deluxe has no Impact on Luxury
Rupees
Particulars
Luxury Deluxe Total
Sales (a) 200,000 0 200,000
Less: Variable Costs (b) 120,000 0 120,000
Contribution (a-b) 80000 0 80000
Less: Fixed Costs (c) 40,000 24,000 64,000
Operating Profit (a-b-c) 40,000 -24,000 16,000

We should not drop Deluxe because our operating profit is going down from 36000
INR to 16000 INR.
 (b) Statement of Marginal Cost when Drop of Deluxe Impact on Luxury
Rupees
Particulars
Luxury Deluxe Total
Sales (a) 300,000 0 300,000
Less: Variable Costs (b) 180,000 0 180,000
Contribution (a-b) 120000 0 120000
Less: Fixed Costs (c) 40,000 36,000 76,000
Operating Profit (a-b-c) 80,000 -36,000 44,000

We should drop Deluxe because our operating profit is going up from 36000 INR to
44000 INR.