MARGINAL COSTING

Ex. 1. A Company makes a profit of Rs. 50,000 from sales of Rs. 8,00,000. Its Fixed costs are Rs.
2,00,000. What is BEP?
Calculation of P/V ratio
¿ Cost + Profit
P/V Ratio = X 100
Sales
2 ,00,000+50,000
P/V Ratio = X 100 =31.25%
8 , 00,000
P/V Ratio = 31.25%
Calculation of BEP
¿ Cost X Sales 2 ,00,000
100
BEP = P BEP = 31.25 = 2,00,000 X = 6,40,000
Ratio 31.25
V 100
BEP = Rs. 6,40,000
Ex. 2. A Company’s sales is Rs. 12,00,000. Its Fixed costs and BEP are Rs. 3,00,000 and Rs.
6,00,000 respectively. What profit it made?
At BEP level = Contribution is equal to fixed cost
Calculation of P/V ratio
Contribution 3 , 00,000
P/V Ratio = X 100 P/V Ratio = X 100 = 50%
BEP Sales 6 , 00,000
P/V Ratio = 50%
Calculation of Profit
¿ Cost + Profit
Sales = P
Ratio
V
P
Cross multiplication Sales X Ratio= Fixed cost + Profit
V
50
12,00,000 X = 3,00,000 + Profit
100
6,00,000 = 3,00,000 + Profit
∴ Profit = 6,00,000 – 3,00,000
Profit = Rs. 3,00,000
Ex. 3. A company makes a profit of Rs. 10,00,000 and its Fixed costs and BEP are Rs. 15,00,000
and Rs. 25,00,000 respectively find sales.
Calculation of P/V ratio
At BEP level = Contribution
Contribution
P/V Ratio = X 100
BEP Sales
1, 50,000
= X 100 = 60%
2 ,50,000
P/V Ratio = 60%
Calculation of required to earn desired profit
1
 ¿ Cost + Desired Profit
Required sales = P
Ratio
V
1, 50,000+1 , 00,000
100
= 60 = 2,50,000 X = 4,16,666.66 or 4,16,667
60
100
Required sales = Rs. 4,16,667

Ex. 4. A company makes a profit of Rs. 40,00,000 and its Fixed cost Rs. 8,00,000 and BEP sales
Rs. 18,00,000. Find out Actual sales and Margin of Safety
At BEP level = Contribution is equal to fixed cost
Contribution
P/V Ratio = X 100
BEP Sales
8 , 00,000
= X 100 = 50%
16 , 00,000
P/V Ratio = 50%
Calculation of required to earn desired profit
¿ Cost + Desired Profit 8 , 00,000+4 ,00,000
100
Required sales = P = 50 = 12,00,000 X = 24,00.000
Ratio 50
V 100
Required sales = Rs. 24,00,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
= 24,00,000 – 16,00,000 = 8,00,000
Margin of Safety = Rs. 8,00,000
Ex. 5. From the following particulars calculate:
a) P/V Ratio b) Fixed cost
I Year Sales Rs. 1,95,000 Profit Rs. 9,000
II Year Sales Rs. 2,25,000 Profit Rs. 15,000
Calculation of P/V ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
2 ,25,000−1 ,95,000
P/V Ratio = X 100 = 20%
15,000−9,000
P/V Ratio = 20%
Calculation of Contribution
Contribution = Sales X P/V ratio
20
For I Year = 1,95,000 X = Rs. 39,000
100
20
For II Year = 2,25,000 X = Rs. 45,000
100
Calculation of Fixed cost (fixed cost is same for both years)
Fixed cost = Contribution – Profit
2
For I year = 39,000 – 9,000 = 30,000 Fixed cost = Rs. 30,000
For II year = 45,000 – 15,000 = 30,000 Fixed cost = Rs. 30,000
Ex. 6. From the following data calculate:
1) P/V Ratio 2) Profit when sales Rs. 40,000 3) New BEP if selling price is reduced by 20%
Fixed expenses Rs. 8,000
Break Even Point Rs. 20,000 (KUD 2014)
Calculation of P/V ratio
¿ Cost
P/V Ratio = X 100
BEP
8,000
P/V Ratio = X 100 = 40% P/V Ratio = 40%
20,000
Calculation of profit when sales are Rs. 40,000
Profit = Contribution – Fixed cost
∴ Contribution = Sales X P/V ratio
40
= 40,000 X = 16,000
100
Profit = 16,000 – 8,000 = 8,000
Profit = Rs. 8,000
Calculation of BEP at selling price reduce by 20%
(assumed sales price is Rs. 100)
Selling price = 100
Less: Reduced by 20% = 20
New selling price = 80
Calculation of contribution
Ex. 7. From the following figures calculate sales to earn a profit of Rs. 1,20,000
Sales Rs. 6,00,000 Variable cost Rs. 3,75,000 Fixed cost Rs. 1,80,000
Calculation of Contribution
Contribution = Sales – Variable cost
= 6,00,000 – 3,75,000
Contribution = Rs. 2,25,000
Calculation of P/V ratio
Contribution 2 ,25,000
P/V Ratio = X 100 P/V Ratio = X 100 = 37.5%
Sales 6 , 00,000
P/V Ratio = 37.5%
Calculation of required sales to earn desired profit Rs. 1,20,000
¿ Cost + Desired Profit 1, 80,000+1 , 20,000
100
Required sales = P = 37.5 = 3,00,000 X = 8,00.000
Ratio 37.5
V 100
Required sales = Rs. 8,00,000
Ex. 8. Sales Rs. 5,00,000, Fixed cost Rs. 60,000 Variable cost Rs. 3,80,000
Calculate: 1) BEP 2) P/V Ratio 3) Contribution 4) Profit (KUD 2012)
Calculation of Contribution
Contribution = Sales – Variable cost
3
 = 5,00,000 – 3,80,000
Contribution = Rs. 1,20,000
Calculation of Profit
Profit = Contribution – Fixed profit
= 1,20,000 – 60,000
Profit = Rs. 60,000
Calculation of P/V ratio
Contribution 1 ,20,000
P/V Ratio = X 100 = P/V Ratio = X 100 = 24%
Sales 5 ,00,000
P/V Ratio = = 24%
Calculation of BEP
¿ Cost 60,000
100
BEP = P = BEP = 24 = 60,000 X = 2,50,000 BEP = Rs. 2,50,000
Ratio 24
V 100
Ex. 9. From the following information calculate BEP & the sales required to earn profit of Rs.
30,000
Rs.
Fixed overheads 1,80,000
Variable cost per unit 2
Selling Price per unit 20
If the company is earning a profit of Rs. 36,000, express the margin of safety available to it.
Calculation of Contribution
Contribution = Sales – Variable cost
= 20 – 2
Contribution = Rs. 18
Calculation of P/V ratio
Contribution 18
P/V Ratio = X 100 = P/V Ratio = X 100 = 90%
Sales 20
P/V Ratio = 90%
Calculation of BEP
¿ Cost 1, 80,000
100
BEP = P = BEP = 90 = 1,80,000 X = 2,00,000
Ratio 90
V 100
BEP = Rs. 2,00,000
Calculation of required Sales to earn desired profit Rs. 36,000
¿ Cost + Desired Profit 1, 80,000+36,000
100
Required sales = P = 90 = 3,00,000 X = 2,40.000
Ratio 90
V 100
Required sales = Rs. 2,40,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
= 2,40,000 – 2,00,000 = 40,000 Margin of Safety = Rs. 40,000
Ex. 10. The following figures are obtained from the accounts of ‘Star’ Ltd.,
Year Sales in Units Profit/Loss (Rs)
4
 2010 4,000 5,000 (Loss)
2011 6,000 5,000 (Profit)
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
(Here in 2010 there is a loss of Rs. 5,000. But in 2011 there is a profit of Rs. 5,000
Calculation of change in profit - Rs. 5,000 to 0 should earn Rs. 5,000 and 0 to 5,000 profit earn
Rs. 5,000 hence total profit Rs, 5,000 + 5,000 = Profit Rs. 10,000 the loss is converted in to
profit)
∴ Change in Profit = Rs. 10,000
Calculation of sales
Here sales is given in units and sales per unit is given
∴ Total sales = Number of units X Rate per unit
for 2010 4,000 X 20 = 80,000
for 2011 6,000 X 20 = 1,20,000
∴ Change in sales = Rs. 40,000
Change∈Profit 10,000
P/V Ratio = X 100 P/V Ratio = X 100 = 25% P/V Ratio = 25%
Change∈Sales 40,000
Calculation of contribution
Contribution = Sales X P/V Ratio
25
2010 = 80,000 X = Rs. 20,000
100
25
2011 = 1,20,000 X = Rs. 30,000
100
Calculation of Fixed cost
Fixed cost for both years is same
Fixed cost = Contribution + Loss
2010 = 20,000 + 5,000
Fixed cost = Rs. 25,000
2011 = Contribution – Profit
= 30,000 – 5,000
Fixed cost = Rs. 25,000
Ex. 11. P/V ratio is 50% and variable cost of the product is Rs. 75. What will be the selling price?
Given: P/V ratio = 50% Variable cost = Rs. 75
Calculation Sales
Sales−Variable cost
P/V Ratio = X 100
Sales
Sales−75
50% = X 100
Sales
75
75 100
∴ Sales = = 50 = 75 X = Rs. 150
50 % 50
100
Proof:

5
 Sales−Variable cost
P/V Ratio = X 100
Sales
150−75
P/V Ratio = X 100 = 50%
150
Ex. 12. From the following particulars calculate: a) P/V Ratio b) Fixed cost
Year Sales (Rs.) Profit (Rs)
I Year 1,30,000 6,000
II Year 1,50,000 10,000
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
4,000
P/V Ratio = X 100 = 20%
20,000
P/V Ratio = 20%
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution + Loss
∴ Contribution = Sales X P/V Ratio
20
I Year Contribution = 1,30,000 X 20% = 1,30,000 X = Rs. 26,000
100
20
II Year Contribution = 1,50,000 X 20% = 1,50,000 X = Rs. 30,000
100
Fixed cost
I Year = 26,000 – 6,000 = 20,000 Fixed cost = Rs. 20,000
II Year = 30,000 – 10,000 = 20,000 Fixed cost = Rs. 20,000
Ex. 13. ‘A’ Ltd., has total turnover of Rs. 10,00,000. It enjoying 30% Margin of safety. Its total
variable cost is 60% of sales
Determine: 1) Fixed cost 2) BEP Sales
Given: Sales Rs. 10,00,000 Margin of Safety = 30% and 3) Variable cost = 60%
Calculation of Contribution
Contribution = Sales – Variable cost
60
∴ Variable cost =60% of sales = 10,00,000 X = 6,00,000
100
Contribution = 10,00,000 – 6,00,000
Contribution = 4,00,000
Calculation of P/V ratio
Contribution
P/V Ratio = X 100
Sales
4 , 00,000
P/V Ratio = X 100 = 40%
10 ,00,000
P/V Ratio = 40%
Calculation of Profit
Calculation of percentage of profit
% of profit = % of Margin of Safety X P/V ratio

6
 30 40
= 30% X 40% = X = 12%
100 100
Profit 12% on sales
12
Profit = 10,00,000 X = 1,20,000
100
Profit = Rs. 1,20,000
Calculation of BEP sales
Margin of safety = Actual sales – BEP Sales
∴ BEP Sales = Actual sales – Margin of Safety
Actual sales 10,00,000
Less: M/S 30% of Rs. 10,00,000 3,00,000
BEP Sales 7,00,000
BEP Sales = Rs. 7,00,000
Calculation of Fixed cost
¿ Cost
BEP = P
Ratio
V
40
∴ BEP Sales X P/V ratio = 7,00,000 X = 2,80,000
100
Fixed cost = Rs. 2,80,000
Ex. 14. The Turnover and profit during two periods were as follows:
Year Sales (Rs.) Profit (Rs)
I Period 40 Lakhs 4 Lakhs
II Period 60 Lakhs 8 Lakhs
Calculate:
1) P/V ratio 2) BEP Sales 3) Sales required to earn a profit of Rs. 10 Lakhs 4) Profit when sales are
Rs. 50 Lakhs

Calculation of P/V Ratio

Change∈Profit
P/V Ratio = X 100
Change∈Sales
4 , 00,000
P/V Ratio = X 100 = 20%
20 , 00,000
P/V Ratio = 20%
Calculation of BEP sales
¿ Cost
BEP = P
Ratio
V
∴ Fixed cost = Contribution – Profit
Contribution = Sales X P/V ratio
20
I Period = 40,00,000 X = 8,00,000
100
∴ Fixed cost = 8,00,000 – 4,00,000 = 4,00,000 Fixed cost = Rs. 4,00,000

7
 20
II Period = 60,00,000 X = 12,00,000
100
∴ Fixed cost = 12,00,000 – 8,00,000 = 4,00,000 Fixed cost = Rs. 4,00,000
4 ,00,000
100
BEP Sales = 20 = 4,00,000 X = Rs. 20,00,000
20
100
BEP Sales = Rs. 20,00,000
Calculation of required Sales to earn desired profit Rs. 10,00,000
¿ Cost + Desired Profit 4 ,00,000+10 ,00,000
100
Required sales = P = 20 = 14,00,000 X = 70,00.000
Ratio 20
V 100
Required sales = 70,00,000
Calculation of profit when the sales are Rs. 50,00,000
Contribution = Sales X P/V Ratio
20
Contribution = 50,00,000 X = Rs. 10,00,000
100
∴ Profit = Contribution – Fixed cost
∴ Profit = 10,00,000 – 4,00,000 = 6,00,000
Profit = Rs. 6,00,000
Ex. 15. Compute the amount of fixed cost from the following information:
Sales Rs. 4,80,000 Direct material Rs. 1,60,000 Direct Labour variable overhead Rs. 40,000
Profit Rs. 1,00,000
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 4,80,000 – (1,60,000 + 40,000 = 4,80,000 – 2,00,000
Contribution = Rs. 2,80,000
Calculation of Fixed cost
Fixed cost = Contribution – Profit
= 2,80,000 – 1,00,000 Fixed cost = Rs. 1,80,000
Ex. 16. Dream Doll Ltd., prepares the following forecasts for the next year:
Pairs of Doll to be sold 24,000
Selling price per pair Rs. 40
Variable cost per pair Rs. 25
Staff cost for the year Rs. 90,000
General office cost for the year Rs. 1,50,000
Calculate the BEP in pairs of Doll to be sold and margin of safety

Calculation of contribution
Contribution = Sales – Variable cost
Sales = Number of Dolls sold X Sales per Doll 24,000 X 40 = 9,60,000
Variable cost = Variable cost per Doll X Number of Dolls = 24 X 24,000 = 6,00,000
Contribution = 9,60,000 – 6,00,000
Contribution = 3,60,000
Calculation of P/V ratio

8
 Contribution
P/V ratio = X 100
Sales
3 ,60,000
P/V Ratio = X 100 = 37.5%
9 , 60,000
P/V Ratio = 37.5%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
Calculation of Fixed cost
Staff salary + General office cost = 90,000 + 1,50,000 = 2,40,000
2 , 40,000 100
BEP (sales) = = 2,40,000 X = 6,40,000
37.5 % 37.5
BEP (sales) = Rs. 6,40,000
BEP sales 6 , 40,000
BEP (Units) = = = 16,000 Dolls
Sales price per unit 40
BEP (Units) = 16,000 Dolls
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
= 9,60,000 – 6,40,000 = 3,20,000
Margin of Safety = Rs. 3,20,000
Ex. 17. From the following calculate P/V ratio, Contribution and Fixed cost
Year Sales (Rs.) Profit/Loss (Rs)
2017 7,00,000 10,000 Loss
2018 9,00,000 10,000 Profit
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
(Here in 2017 there is a loss of Rs. 10,000. But in 2018 there is a profit of Rs. 10,000
Calculation of change in profit Rs. - 10,000 to 0 should earn Rs. 10,000 and 0 to 10,000 profit
earn Rs. 10,000 hence total profit Rs, 10,000 + 10,000 = Profit Rs. 20,000 the loss is converted in
to profit)
∴ Change in Profit = Rs. 20,000
∴ Change in sales = Rs. 2,00,000
Change∈Profit 20,000
P/V Ratio = X 100 P/V Ratio = X 100 = 10%
Change∈Sales 2 ,00,000
Calculation of contribution
Contribution = Sales X P/V Ratio
10
2017 = 7,00,000 X = Rs. 70,000
100
10
2018 = 9,00,000 X = Rs. 90,000
100
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution + Loss

9
 2017 = 70,000 + 10,000 = 80,000 Fixed cost = Rs. 80,000
2018 = Contribution – Profit
= 80,000 – 10,000 = Rs. 80,000 Fixed cost = Rs. 80,000
Ex. 18. From the following calculate, P/V ratio, Contribution and Fixed cost
Year Sales (Rs.) Profit (Rs)
I Year 30,00,000 3,00,000
II Year 50,00,000 7,00,000 (KUD 2008)
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
4 , 00,000
P/V Ratio = X 100 = 20%
20 , 00,000
Calculation of contribution
Contribution = Sales X P/V Ratio
20
I Year = 30,00,000 X = Rs. 6,00,000
100
20
II Year = 50,00,000 X = Rs. 10,00,000
100
Calculation of Fixed cost (same for both years)
Fixed cost = Contribution – Profit
I Year Fixed cost = 6,00,000 – 3,00,000 = 3,00,000 Fixed cost = Rs. 3,00,000
II Year = 10,00,000 – 7,00,000 = 3,00,000 Fixed cost = Rs. 3,00,000
Ex. 19. Prakash Ltd., gives the following information:
Sales: 10,000 units at Rs. 20 per unit
Profit Volume Ratio: 50%
Fixed cost: Rs. 80,000
Calculate: a) BEP in units b) BEP in sales 3) P/V ratio if sales price is reduced by 10% (KUD
2007)
¿ cost
BEP(sales) = P
ratio
V
80,000
100
BEP(sales) = 50 80,000 X = Rs. 1,60,000
50
100
BEP(sales) = Rs. 1,60,000
Calculation of Contribution
Contribution
P/V Ratio =
Sales
Contribution
50% =
20
100
∴ Contribution = 20 X = 10
50
¿ cost 80,000
BEP(Units) = = = 8,000
Contribution per unit 10
BEP(Units) = 8,000 units
10
Calculation of New sales
Sales price is reduced by 10%
Sales price 20
Less: Reduced by 10% 2
New sales price 18
Calculation of new contribution
Contribution = Sales – Variable cost
Contribution = 18 – 10 = Rs. 8
Contribution
P/V Ratio = X 100
Sales
8
P/V Ratio = X 100 = 44.44%
10
P/V Ratio = 44.44%
Ex. 20. The following information relates to ‘X’ Ltd.,
Sales: 10,000 units at Rs. 20 per unit
Variable cost Rs. 10 per unit
Fixed cost: Rs. 80,000
Find 1) BEP in units as well as amount and also profit
2) Sales to earn a profit of Rs. 60,000
Calculation of BEP (sales)
¿ cost
BEP(sales) = P
ratio
V
Sales−Variable Cost
P/V Ratio = X 100
Sales
20−10
= X 100 = 50%
20
80,000 100
BEP(sales) = = 80,000 X = 1,60,000
50/100 50
BEP(sales) = Rs. 1,60,000
¿ cost 80,000
BEP(Units) = = = 8,000 units
Contribution per unit 20−10
BEP(Units) = 8,000 units
Calculation of sales to earn desired amount of profit of Rs. 60,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
80,000−60,000
100
Sales to earn Desired profit = 50 = 1,40,000 X = 2,80,000
50
100
Sales to earn Desired profit = Rs. 2,80,000
Ex. 21. From the following information calculate:
1) P/V ratio 2) BEP 3) Sales to earn profit of Rs. 1,20,000

11
 i) Direct Materials per unit Rs. 4.50
ii) Direct Labour per unit Rs. 3
iii) Variable cost at 100% of direct labour
iv) Fixed cost Rs. 2,40,000 per year
v) Selling price Rs. 15 per unit
vi) Trade Discount at 5% on sale

Calculation of net sales price

Selling price 15
Less: Trade discount 5% 0.75
Net sales price 14.25
Calculation of total variable cost
Direct Materials 4.50
Direct Labour 3.00
Variable cost 3.00
Total variable cost 10.50
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 14.75 – 10.50 = 3.75
Contribution = Rs. 3.75
Calculation of P/V Ratio
Contribution
P/V Ratio = X 100
Sales
3.75
P/V Ratio = X 100 = 26.32%
14.75
P/V Ratio = 26.32%
Calculation of BEP (sales)
¿ cost
BEP(sales) = P
ratio
V
2 , 40,000
100
BEP(sales) = 26.32 = 2,40,000 X = 9,11,854
26.32
100
BEP(sales) = Rs. 9,11,854
¿ cost 2 , 40,000
BEP(Units) = = = 64,000 units
Contribution per unit 3.75
BEP(Units) = 64,000 units
Calculation of sales to earn desired amount of profit of Rs. 1,20,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V

12
 2 , 40,000 – 1 ,20,000
100
Sales to earn Desired profit = 26.32 = 3,60,000 X = 13,67,781
26.32
100
Sales to earn Desired profit = Rs. 13,67,781
Ex. 22. From the following information calculate:
1) P/V ratio 2) Contribution 3) Fixed cost
Year Sales (Rs.) Profit (Rs)
2019 2,70,,000 6,000
2020 3,00,000 15,000
Change 30,000 9,000
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
9,000
P/V Ratio = X 100 = 30% P/V Ratio = 30%
30,000
Calculation of contribution
Contribution = Sales X P/V Ratio
30
2019 = 2,70,000 X = Rs. 81,000
100
30
2020 = 3,00,000 X = Rs. 90,000
100
Calculation of Fixed cost (same for both years)
Fixed cost = Contribution – Profit
2019 Fixed cost = 81,000 – 6,000 = 75,000 Fixed cost Rs. 75,000
2020 Fixed cost = 90,000 – 15,000 = 75,000 Fixed cost Rs. 75,000
Ex. 23. A company has fixed expenses of Rs. 1,80,000, Sales Rs. 6,00,000 and Profit Rs. 1,20,000
Calculate: 1) P/V ratio
2) In the next year if company suffered a loss of Rs. 60,000 Calculate P/V ratio
Calculation of contribution
Contribution = Fixed Cost + Profit
Contribution = 1,80,000 + 1,20,000
Contribution = Rs. 3,00,000
Calculation of P/V Ratio
Contribution
P/V Ratio = X 100
Sales
3 , 00,000
P/V Ratio = X 100 = 50%
6 , 00,000
P/V Ratio = 50%
In the next year If co., suffered a loss of Rs. 60,000
Calculation of contribution
Contribution = Fixed Cost - Loss
Contribution = 1,80,000 – 60,000
Contribution = Rs. 1,20,000
Calculation of P/V Ratio
13
 Contribution
P/V Ratio = X 100
Sales
1 ,20,000
P/V Ratio = X 100 = 20%
6 , 00,000
P/V Ratio = 20%
Ex. 24. Sleep Deep has a total turnover Rs. 10,00,000. It enjoys 30% Margin of Safety. Its total
variable cost is 60% of sales. Determine: 1) Fixed cost 2) BEP sales
Calculation of Margin of Safety
30
Margin of Safety 30% of sales = 10,00,000 X = 3,00,000
100
Margin of Safety = Rs. 3,00,000
Calculation of BEP
BEP sales = Actual sales – Margin of safety
= 10,00,000 – 3,00,000 = 7,00,000
BEP sales = Rs. 7,00,000
Calculation of variable cost
Variable cost = 60% of sales
60
= 10,00,000 X = 6,00,000
100
Variable cost = Rs. 6,00,000
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 10,00,000 – 6,00,000 = 4,00,000
Calculation of P/V Ratio
Contribution
P/V Ratio = X 100
Sales
4 , 00,000
P/V Ratio = X 100 = 40%
10 ,00,000
P/V Ratio = 40%
Calculation of Fixed cost sales
¿ Cost
BEP = P
Ratio
V
¿ Cost
7,00,000 =
40 %
40
∴ Fixed cost = 7,00,000 X = 2,80,00
100
Fixed cost = Rs. 2,80,000
Ex. 25. The P/V ratio of Riddi Ltd., is 40%. Margin of Safety is 30% and sales Rs. 3,00,00
Calculate: 1) BEP 2) Profit if sales are Rs. 2,50,000 3) Fixed cost
Given: P/V ratio = 40% Margin of Safety = 30% Sales = 3,00,000
Calculation of Margin of Safety

14
 30
Margin of Safety 30% of sales = 3,00,000 X = 90,000
100
Margin of Safety = Rs. 90,000
Calculation of BEP
BEP sales = Actual sales – Margin of safety
= 3,00,000 – 90,000 = 2,10,000
BEP sales = Rs. 2,10,000
Calculation of Profit
Calculation of percentage of profit
% of profit = % of Margin of Safety X P/V ratio
30 40
= 30% X 40% = X = 12%
100 100
Profit 12% on sales
12
Profit = 2,50,000 X = 30,000
100
Profit = Rs. 30,000
Calculation of Contribution for Actual sales
Contribution = Sales X P/V Ratio
40
Contribution = 3,00,000 X 40% = 3,00,000 X = 1,20,000
100
Contribution = Rs. 1,20,000
Calculation of Contribution for BEP sales
Contribution = Sales at BEP X P/V Ratio
40
Contribution = 2,10,000 X 40% = 2,10,000 X = 84,000
100
BEP level contribution is equal to fixed cost
∴ Fixed cost = 84,000
Fixed cost = Rs. 84,000

Ex. 26. From the following data calculate:

1) BEP in units and in value
2) Number of units that must sold to earn profit of Rs. 1,20,000
3) Margin of Safety when profit is Rs. 1,20,000
Sales price per unit Rs. 40
Variable cost per unit Rs. 22
Fixed cost (factory) Rs. 1,80,000
Fixed cost (sales) Rs. 50,000
Calculation BEP
¿ Cost
BEP = P
Ratio
V
Sales−Variable Cost
∴ P/V Ratio = X 100
Sales
15
 40−22
P/V Ratio = X 100 = 45% P/V Ratio = 45%
40
Fixed cost = 1,80,000 + 50,000 = 2,30,000
2 ,30,000
100
BEP (sales) = 45 = 2,30,000 X = 5,11,111.11 = 5,11,111
45
100
BEP (sales) = Rs. 5,11,111
BEP sales 5 ,11,111
BEP (Units) = = = 12,777.77 or 12,778
Sales per unit 40
BEP (Units) = 12,778 units
Calculation of Number units to earn profit of Rs. 1,20,000
¿ cost + Desired profit
Required sales = P
Ratio
V
2 ,30,000+1 , 20,000
100
= 45 = 3,50,000 X = 7,77,777.77 or 7,77,778
45
100
Required sales = Rs. 7,77,778
Calculation of Margin of Safety when profit of Rs. 1,20,000
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 7,77,778 – 5,11,111 = 2,66,667
Margin of Safety = Rs. 2,66,667
Ex. 27. Find P/V ratio, Fixed cost and BEP from the following:
Sales price per unit Rs. 10
Year Sales (Units) Total cost (Rs)
2019 15,000 1,30,000
2020 17,000 1,45,000
Calculation of sales
Total sales = Number of units X Sales price per unit
2019 = 15,000 X 10 = 1,50,000
2020 = 17,000 X 10 – 1,70,000
Calculation of profit
Profit = Sales – Total cost
2019 = 1,50,000 – 1,30,000 = 20,000
2020 = 1,70,000 – 1,45,000 = 25,000
Calculation of P/V ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
5,000
P/V Ratio = X 100 = 25% P/V Ratio = 25%
20,000
Calculation of Contribution
Contribution = Sales X P/V Ratio
25
2019 Contribution = 1,50,000 X = 37,500
100
25
2019 Contribution = 1,70,000 X = 42,500
100
Calculation of Fixed cost (fixed cost is same for both year)
Fixed cost = Contribution – Profit
16
 2019 Fixed cost = 37,500 – 20,000 = 17,500 Fixed cost = Rs. 17,500
2020 Fixed cost = 42,500 – 25,000 = 17,500 Fixed cost = Rs. 17,500
Calculation of BEP sales
¿ Cost
BEP = P
Ratio
V
17,500
25
BEP = 25 = 17,500 X = 70,000
100
100
BEP = Rs. 70,000
Ex. 28. The sales and profit of Alpha Ltd., for the year were as under:
P/V ratio, Contribution and Fixed cost
Year Sales (Rs.) Profit (Rs)
2018 1,00,000 10,000
2019 1,50,000 20,000
Find: 1) P/V ratio 2) Fixed cost 3) BEP 4) Profit at sales Rs. 2,00,000
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
10,000
P/V Ratio = X 100 = 20% P/V Ratio = 20%
50,000
Calculation of contribution
Contribution = Sales X P/V Ratio
20
2018 = 1,00,000 X = Rs. 20,000
100
20
2019 = 1,50,000 X = Rs. 30,000
100
Calculation of Fixed cost (same for both years)
Fixed cost = Contribution – Profit
2018 Fixed cost = 20,000 – 10,000 = 10,000 Fixed cost = Rs. 10,000
2019 Fixed cost = 30,000 – 10,000 = 10,000 Fixed cost = Rs. 10,000
Calculation of profit when sales is Rs. 2,00,000
Contribution = Sales X P/V Ratio
20
Contribution = 2,00,000 X = 40,000
100
∴ Profit = Contribution – Fixed cost
= 40,000 – 10,000 = 20,000
Profit = Rs. 20,000
Calculation of BEP
¿ Cost 10,000
100
BEP = P BEP = 20 = 10,000 X = 50,000 BEP = Rs. 50,000
Ratio 20
V 100
Ex. 29. Following is the information of ‘M’ Co., Ltd., which manufactures Moulded chairs:
Fixed cost Rs. 50,000
Variable cost Rs. 20 per chair
Selling price Rs. 70 per chair
Capacity (p.a.) 2,000 chairs
Calculate: 1) BEP 2) Number of chairs to be sold to earn a profit of Rs. 30,000
3) BEP if the selling price changes to Rs. 60 per chair
Calculation of sales
17
 Sales = Sales per unit X Number of units = 70 X 2,000 = 1,40,000
Sales = Rs. 1,40,000
Calculation of Variable cost
Variable cost = Variable cost per unit X Number of units = 20 X 2,000 = 40,000
Variable cost = Rs. 40,000
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 1,40,000 – 40,000 = 1,00,000
Contribution = Rs. 1,00,000
Calculation of P/V Ratio
Contribution
P/V Ratio = X 100
Sales
1 ,00,000
P/V Ratio = X 100 = 71.43%
1, 40,000
P/V Ratio = 71.43%
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
50,000
100
BEP = 71.43 = 50,000 X = 69,998.60
71.43
100
BEP (sales) = Rs. 69,998.60 or 70,000
BEP sales
BEP (Units) =
Sales per unit
69,998.60
BEP = = 999.98 or 1,000
70
BEP (Units) = 1,000 units
Calculation of Sales required to earn profit of Rs. 30,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
50,000+30,000
100
Sales to earn Desired profit = 71.43 = 80,000 X = 1,11,997.76 or 1,11,998
71.43
100
Sales to earn Desired profit = Rs. 1,11,998
Calculation of BEP if sales price is Rs. 60
Contribution = Sales – Variable cost
= 60 – 20 = 40 Contribution = Rs. 40
Calculation of P/V Ratio
Contribution
P/V Ratio = X 100
Sales
40
P/V Ratio = X 100 = 66.67% P/V Ratio = 66.67%
60
Calculation of BEP

18
 ¿ Cost
BEP (sales) = P
Ratio
V
50,000
100
BEP = 66.67 = 50,000 X = 74,996,.25 or = 74,996
66.67
100
BEP (sales) = Rs. 74996
BEP sales
BEP (Units) =
Sales per unit
74,996
BEP = = 1,249.93 or 1,250 BEP (Units) = 1,250 units
60
Ex. 30. Lovely Toys Co., gives the following details for its product ‘Lovely Bug’
Selling price per unit Rs. 20
Direct material cost per unit Rs. 5
Direct wages per unit Rs. 2
Variable cost per unit Re. 1
Sales commission 15% of selling price
Fixed cost per annum Rs. 20,000
You are required to calculate:
1) P/V ratio 2) BEP 3) Margin of Safety 4) Sales to earn profit of Rs. 20,000
5) BEP if fixed cost rise by 20%
Calculation of total variable cost
Direct Materials 5
Direct Labour 2
Variable cost 1
Total variable cost 8
Calculation of net sales
Sales price 20
Less: Commission at 15% 3
Net sales 17
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 17 – 8 = 9
Contribution = Rs. 9
Calculation of P/V ratio
Contribution
P/V Ratio = X 100
Sales
9
P/V Ratio = X 100 = 52.94% P/V Ratio = 52.94%
17
Calculation of BEP
¿ Cost
BEP(sales) = P
Ratio
V
20,000
100
BEP = 52.94 = 20,000 X = 37,779.61 or = 37,779
52.94
100
Calculation of Margin of Safety

19
Margin of Safety = Actual sales = 1,00,000 – 37,779 = 62,221
Margin of Safety = Rs. 62,221
Calculation of sales to earn desired profit of Rs. 20,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
20,000+20,000
100
Sales to earn Desired profit = 52.94 = 40,000 X = 75,557.23 or 75,557
52.94
100
Sales to earn Desired profit = Rs. 75,557
Calculation of BEP if fixed cost is rise by 20%
Fixed cost 20,000
Add: Increased by 20% 4,000
New fixed cost 24,000
¿ Cost 24,000
100
BEP (sales) = P BEP = 52.94 = 24,000 X = 45,334.34 or 45,334
Ratio 52.94
V 100
BEP = Rs. 45,334
Ex. 31. Using the following data calculate:
1) Contribution 2) Profit 3) BEP 4) Sales to earn profit of Rs. 1,05,000
Fixed cost Rs. 1,75,000
Sales Rs. 7,50,000
P/V ratio 35%
Calculation of Contribution
Contribution = Sales X P/V Ratio
35
Contribution = 7,50,000 X = 2,62,500
100
Contribution = Rs. 2,62,500
Calculation Profit
Profit = Contribution – Fixed cost
= 2,62,500 – 1,75,000 = 87,500
Profit = Rs. 87,500
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
1, 75,000
100
BEP = 35 = 1,75,000 X = 5,00,000
35
100
BEP (sales) = Rs. 5,00,000
Calculation of sales to earn desired profit of Rs. 1,05,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V

20
 1, 75,000+1 , 05,000
100
Sales to earn Desired profit = 35 = 1,80,000 X = 8,00,000
35
100
Sales to earn Desired profit = Rs. 8,00,000
Ex. 32. Kindlight manufactures and sell Candles of a special varity. The variable cost per candle
is Rs. 2 per unit, while selling rate is Rs. 5 per unit, the fixed cost is Rs. 21,000.
You are require to find out:
1) BEP in units and value 2) Sales to earn profit of Rs. 30,000
3) Margin of Safety when profit is Rs. 30,000
Calculation of P/V ratio
Sales−Variable cost
P/V Ratio = X 100
Sales
5−2
P/V Ratio = X 100 = 60%
5
P/V Ratio = 60%
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
21,000
100
BEP = 60 = 21,000 X = 35,000
60
100
BEP (sales) = Rs. 35,000
BEP sales
BEP (Units) =
Sales per unit
35,000
BEP = = 7,000 units
5
BEP (Units) = 7,000 Units
Calculation of sales to earn desired profit of Rs. 1,05,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
21,000+30,000
100
Sales to earn Desired profit = 60 = 51,000 X = 85,000
60
100
Sales to earn Desired profit = Rs. 85,000
Calculation of Margin of Safety
Profit
Margin of Safety = P
Ratio
V
30,000
100
Margin of Safety = 60 = 30,000 X = 50,000
60
100
Margin of Safety = Rs. 50,000
Ex. 33. Lucky Ltd., sets up production plant every month for the month of March budget was
established:
Selling price per unit Rs. 1,000
Material cost per unit Rs. 400

21
 Wages per unit Rs. 200
Fixed cost per annum Rs. 40,000
Budgeted production 150 units
Calculate: 1) Contribution 2) P/V ratio 3)BEP 4) Margin of Safety
Calculation of total variable cost
Material 400
Wages 200
Total 600
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 1,000 – 600 = 400
Contribution = Rs. 400
Calculation of P/V ratio
Contribution
P/V Ratio = X 100
Sales
400
P/V Ratio = X 100 = 40%
1,000
P/V Ratio = 40%
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
40,000
100
BEP = 40 = 40,000 X = 1,00,000
40
100
BEP (sales) = Rs. 1,00,000

Calculation of Margin of Safety

Margin of Safety = Actual sales = (1,00 X 150) – 1,00,000
= 1,50,000 - 50,000
Margin of Safety = 50,000
Ex. 34. Find P/V ratio and sales to earn a profit of Rs. 1,000
Fixed cost Rs. 4,000
BEP sales Rs. 20,000
Sales Rs. 20 per unit
Calculation of P/V ratio
¿ cost
P/V Ratio = X 100
BEP Sales
4,000
P/V Ratio = X 100 = 20%
20,000
P/V Ratio = 20%

Calculation of sales to earn desired profit of Rs. 1,05,000

¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
4,000+1,000
100
Sales to earn Desired profit = 20 = 5,000 X = 25,000
20
100
Sales to earn Desired profit = Rs. 25,000
Ex. 35. Calculate: 1) P/V ratio 2) Fixed cost 3) BEP
22
 Year Sales (Rs.) Total cost (Rs)
2020 2,22,300 1,98,360
2021 2,45,100 2,14,320
Calculation of change in sales and profit
Profit = Sales – Total cost
2020 Profit = 2,22,300 – 1,98,360 = 23,940
2021 Profit = 2,45,100 – 2,14,320 = 30,780
∴ Change in profit = 30,780 – 23,940 = 6,840
Calculation of Change in sales
2020 Sales 2,45,000 – 2021 sales 2,22,300 = 22,800
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
6,840
P/V Ratio = X 100 = 30%
22,800
P/V Ratio = 30%
Calculation of contribution
Contribution = Sales X P/V Ratio
30
2020 = 2,22,300 X = Rs. 66,690
100
Contribution = Rs. 66,690
30
2021 = 2,45,100 X = Rs. 73,530
100
Contribution = Rs. 73,530
Calculation of Fixed cost (same for both years)
Fixed cost = Contribution – Profit
2020 Fixed cost = 66,690 – 23,940 = 42,750
2021 Fixed cost = 73,530 – 30,780 = 42,750
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
42,750
100
BEP = 30 = 42,750 X = 1,42,500
30
100
BEP (sales) = Rs. 1,42,500

SECTION – C
Ex. 1(a). You are given the following data:

23
 Year Sales (Rs.) Profit (Rs.)
1918 1,20,000 8,000
2019 1,40,000 13,000
Find out:
a) P/V ratio b) Fixed cost c) BEP d) Profit when sales are Rs. 1,80,000 e) Margin of Safety in
1999 f) Sales required to earn a profit of Rs. 12,000 g) Variable cost of two periods (KUD 2018)
a) Calculation of P/V ratio:
Change∈Profit 5,000
P/V ratio = X 100 = X 100 = 25%
Change∈Sales 20,000
b) Calculation of Fixed cost:
Fixed cost = Contribution - Profit
Contribution = Sales X P/V ratio
25
2018: 1,20,000 X = 30,000
100
Fixed cost = 30,000 – 8,000 = 22,000 Or
25
2019: 1,40,000 X = 35,000
100
Fixed cost = 35,000 – 13,000 = 22,000
c) Calculation of Break-even point
¿Cost
Break-even-point =
P /V ratio
22,000 25
= = 22,000 X = 88,000
25 % 100
d) Profit when sales are Rs. 1,80,000
Contribution = Sales X P/V ratio
25
= 1,80,000 X = 45,000
100
Profit = Contribution – Fixed cost
= 45,000 – 22,000 = 23,000
e) Margin of safety in 2016
Margin safety = Actual sales – B.E.P. Sales
= 1,20,000 – 88,000 = 32,000
Or
Profit 8,000 100
Margin safety = = = 8,000 X = 32,000
P /V ratio 25 % 25
f) Sales required earning a profit of Rs. 12,000
¿ cost + Desired profit 22,000+12,000
Required sales = = = 1,36,000
P/V Ratio 25 %
g) Variable cost of the two periods
Variable cost = Sales – Contribution
2018: 1,20,000 – 30,000 = 90,000
Variable cost = Rs. 90,000
2019: 1,40,000 – 35,000 = 1,05,000
24
Variable cost = Rs. 1,05,000

Ex. 1 (b). Akashavani Tape recorder company sold 5,000 Tape recorders last year at a price of
1,000 each
Cost Structure is as follows:
Rs.
Material 200
Wages 100
Variable overheads 50
Marginal cost 350
Fixed overheads 400
Total cost 750
Profit 250
Selling price 1,000
Due to heavy competition, the price will have to be reduced to Rs. 850 in the coming year.
Assuming no changes in costs. Calculate the number of Tape recorders that should be sold at the
new price to get the same profit as earned in last year
Calculation of Contribution
Contribution = Sales – Variable cost
= 850 – 350 = 500
Calculation of P/V ratio
Contribution
P/V Ratio = X 100
Sales
500
= X 100 = 58.82%
850
P/V Ratio = 58.82%
Calculation of required sales to earn a profit same profit
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
Calculation of fixed cost
Fixed cost = Number of Tape recorders X Fixed cost per tape recorder
= 5,000 X 400 = 20,00,000
Fixed cost = Rs. 20,00,000
Calculation of profit
Profit = Profit per tape recorder X Profit per tape recorder
= 250 X 5,000 = 12,50,000
Profit = Rs. 12,50,000
20 , 00,000+12 ,50,000
100
Sales to earn Desired profit = 58.82 = 32,50,000 X = 55,25,000
58.82
100
Sales to earn Desired profit = Rs. 55,25,000
Calculation of number of units
Total Sales
Number of Tape recorders = = 6,500 tape recorders
Sales price Taperecorder

25
 55 ,25,000
= = 6,500 tape recorders
850
Number of Tape recorders = 6,500

Ex. 2. Calculate: 1) P/v ratio 2) Break-even-point 3) Margin of Safety 4) Sales required to earn a
profit of Rs. 2,40,000 5) Profit when sales are Rs. 30,00,000 from the following information.
Direct Material Rs. 4.50 per unit
Direct Labour Rs. 3.00 per unit
Variable overheads Rs. 3.00 per unit
Fixed cost Rs. 6,00,000 per annum
Selling price Rs. 10 per unit
Trade Discount Rs. 1 per unit
Units sold 1,40,000
Calculation of sales price
Rs.
Sales price 16
Less: Trade discount 1
Net sales price 15
Calculation of Variable cost
Material Rs. 4.50
Direct labour Rs. 3.00
Variable overheads Rs. 3.00
Total variable cost Rs. 10.50
Calculation of Contribution
Contribution = Sales – Variable cost
= 15 – 10.50 = 4.50
Contribution = Rs. 4.50
Calculation of P/V ratio
Contribution
P/V Ratio = X 100
Sales
4.50
= X 100 = 30%
15
P/V Ratio = 30%
Calculation of BEP
¿ Cost
BEP = P = BEP
Ratio
V
6 , 00,000
100
= 30 = 6,00,000 X
30
100
BEP = Rs. 20,00,000
Calculation of Margin of Safety

26
 Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 1,40,000 X 15 – 20,00,000 = 21,00,000 – 20,00,000
Margin of Safety = Rs. 1,00,000
Calculation of Sales required to earn a profit of Rs. 2,40,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
6 , 00,000+2 , 40,000
100
= 30 = 8,40,000 X = 28,00,000
30
100
Sales to earn Desired profit = Rs. 28,00,000
Calculation of profit when sales are Rs. 30,00,000
Profit = Contribution – Fixed cost
∴ Contribution = Sales X P/V Ratio
30
Contribution = 30,00,000 X = 9,00,000
100
Contribution = Rs. 9,00,000
∴ Profit = 9,00,000 – 6,00,000 = 3,00,000
Profit = Rs. 3,00,000
Ex. 3. The trading results of Sri Krishna Stores, Udupi for the last two years were as follows:
Year Sales Profit
1990 4,80,000 36,000
1991 5,60,000 52,000
80,000 16,000
Calculate: 1) P/V ratio 2) Fixed expenses 3) Break even point 4) Margin of Safety in 1990
5) Margin of Safety when sales are Rs. 7,20,000 6) Sales required to earn a profit of Rs. 60,000
7) Profit at sales of Rs. 5,00,000 8) Variable cost of 1991
a) Calculation of P/V ratio:
Change∈Profit 16,000
P/V ratio = X 100 = X 100 = 25% P/V ratio = 25%
Change∈Sales 80,000
b) Calculation of Fixed cost:
Fixed cost = Contribution - Profit
Contribution = Sales X P/V ratio
25
2018: 1,20,000 X = 30,000
100
Fixed cost = 30,000 – 8,000 = 22,000 Fixed cost = Rs. 22,000
25
2019: 1,40,000 X = 35,000
100
Fixed cost = 35,000 – 13,000 = 22,000 Fixed cost = Rs. 22,000
c) Calculation of Break-even point
¿Cost
Break-even-point =
P /V ratio
22,000 100
= = 22,000 X = 88,000
25 % 25

27
 BEP = Rs. 88,000
d) Profit when sales are Rs. 1,80,000
Contribution = Sales X P/V ratio
25
= 1,80,000 X = 45,000
100
Profit = Contribution – Fixed cost
= 45,000 – 22,000 = 23,000 Profit = Rs. 23,000
e) Margin of safety in 2016
Margin safety = Actual sales – B.E.P. Sales
= 1,20,000 – 88,000 = 32,000
Margin safety = Rs. 32,000
Or
8,000
Profit 100
Margin safety = = 25 = 8,000 X = 32,000
P /V ratio 25
100
Margin safety = Rs. 32,000

f) Sales required earning a profit of Rs. 12,000

22,000+12,000
¿ cost + Desired profit 100
Required sales = = 25 = 34,000 X = 1,36,000
P/V Ratio 25
100
Required sales = Rs. 1,36,000
g) Variable cost of the two periods
Variable cost = Sales – Contribution
2018: 1,20,000 – 30,000 = 90,000 2019: 1,40,000 – 35,000 = 1,05,000
Ex. 4. The following are the budgeted data relating to X Ltd., and Y Ltd., producing identical
products:
X Ltd Rs. Y Ltd., Rs
Sales 3,00,000 3.00.000
Less: Variable cost 2,40,000 2,00,000
Fixed cost 30,000
2,70,000 70,000 2,70,000
30,000 30,000
Calculate: a) BEP, P/V ratio and Margin of Safety of each company
b) State which company earn more profit if:
i) Sales increased to Rs. 3,60,000
ii) Sales decreased to Rs. 1,80,000
Formula X Ltd., Y Ltd.,

Sales−Variable cost 3 ,00,000−2 , 40,000 3 ,00,000−2 , 00,000

P/V ratio = = X 100 = = X 100 =
Sales 3 , 00,000 3 , 00,000
X 100 20% 33.33%

¿ Cost 30,000 70,000

100
BEP = P BEP = 20 = 30,000 X BEP = 33.33 = 70,000 X
Ratio 20
V 100 100
BEP = Rs. 1,50,000 100
33.33
28
 BEP = Rs. 2,10,021
Margin of Safety
= Actual Sales – BEP Sales = 3,00,000 – 1,50,000 = 3,00,000 – 2,10,021
Margin of Safety = Rs. Margin of Safety = Rs. 89,999
1,50,000 or Rs. 90,000

Calculation of profit if sales increased to Rs. 3,60,000

Particulars X Ltd., Y Ltd.,
Sales price 3,60,000 3.60,000
Less: Variable cost 2,40,000 2,00,000
Contribution 1,20,000 1,60,000
Less: Fixed cost 30,000 70,000
Profit 90,000 90,000
Calculation of profit if sales decreased to Rs. 1,80,000
Particulars X Ltd., Y Ltd.,
Sales price 1,80,000 1.80,000
Less: Variable cost 2,40,000 2,00,000
Loss 60,000 20,000
Add: Fixed cost 30,000 70,000
Loss 90,000 90,000

Ex. 5. From the following information calculate:

a) BEP sales value
b) P/V ratio if sales price is reduced by 20%
Sales 20,000 units at Rs. 50 per unit
P/V ratio 40%
Fixed cost Rs. 1,20,000
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
1, 20,000
100
BEP = 40 = 1,20,000 X = 3,00,000
40
100
BEP = Rs. 3,00,000
Calculation of Contribution
Contribution = Sales X P/V Ratio
40
Contribution = 10,00,000 X = 4,00,000
100
Contribution = 4,00,000
Calculation of Variable cost
Variable cost = Sales – Contribution
Variable cost = 10,00,000 – 4,00,000
Variable cost = Rs. 6,00,000

29
Calculation P/V ratio if sales price is reduced by 20%
Old sales = No. of units sold X Rate per unit
= 20,000 X 50 = 10,00,000
Old sales = 10,00,000
Less: Reduced by 20% on 10,00,000 = 2,00,000
New sales price = 8,00,000
Sales−Variable Cost
P/V Ratio = X 100
Sales
8 , 00,000−6 , 00,000
P/V Ratio = X 100 = 25%
8 ,00,000
P/V ratio = 25%
Ex. 6. The following figures for profit and sales are obtained from the account of ‘A’ Co., Ltd.,
Year Sales Profit
1990 40,000 4,000
1991 60,000 8,000
Calculate: a) P/V ratio b) Fixed cost c) BEP d) Profit at sales of Rs. 95,000
e) Sales to earn a profit of Rs. 9,000
a) Calculation of P/V ratio:
Change∈Profit 4,000
P/V ratio = X 100 = X 100 = 20%
Change∈Sales 20,000
P/V ratio = 25%
b) Calculation of Fixed cost:
Fixed cost = Contribution - Profit
Contribution = Sales X P/V ratio
20
2090: 40,000 X = 8,000
100
Fixed cost = 8,000 – 4,000 = 4,000
Fixed cost = Rs. 4,000
20
2091: 60,000 X = 12,000
100
Fixed cost = 12,000 – 8,000 = 4,000
Fixed cost = Rs. 4,000
c) Calculation of Break-even point
¿Cost
Break-even-point =
P /V ratio
4,000
100
= 20 = 4,000 X = 20,000
20
100
BEP = Rs. 20,000
d) Profit when sales are Rs. 95,000
Contribution = Sales X P/V ratio
20
= 95,000 X = 19,000
100
Profit = Contribution – Fixed cost
= 19,000 – 4,000 = 15,000
Profit = Rs. 15,000

30
Calculation of required sales to earn a profit of Rs. 9,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
4,000+ 9,000
100
Sales to earn Desired profit = 20 = 13,000 X = 65,000
20
100
Sales to earn Desired profit = Rs. 65,000
Ex. 7. F.J.Ltd., sold 13,000 units for Rs. 65,000 and made a loss of Rs. 5,000. The variable cost
was Rs. 4 per unit. For the current year the fixed cost will increase by Rs. 3,000 over the those of
last year, the sales price will be increased by 20% per unit and the variable cost will be Rs. 5.50
per unit
Find out:
1) BEP of sales for the current year
2) Profit if 60,000 units are sold in the current year
3) Sales volume required to earn a profit of Rs. 5,000
4) Margin of Safety on the assumption that the forecast for the carrying year sales of 52,000
units5) Contribution to sales ratio
Calculation of Fixed cost
Fixed cost = Contribution + Loss
∴ Contribution = Sales – Variable cost
Variable cost per unit = Rs. 4 ∴ Total 13,000 X 4 = 52,000
Contribution = 65,000 – 52,000
Contribution = Rs. 13,000
Fixed cost = 13,000 + 5,000 Fixed cost = 18,000
For the current year
Fixed cost increased by Rs. 3,000
Old fixed cost Rs. 18,000
Add: Increased Rs. 3,000
New fixed cost Rs. 21,000
Sales price increased by 20% for 13,000 units
Total Per unit
Old sales price Rs. 65,000 5
Add: Increased by 20% Rs. 13,000 1
New sales price Rs. 78,000 6
New variable cost Rs. 71,500 5.5
Calculation of BEP
¿Cost
Break-even-point =
P /V ratio
Sales−Variable cost 78,000−71,500
∴ P/V ratio = X 100 = X 100 = 8.33%
Sales 78,000
P/V ratio = 8.33%
¿ Cost 21,000
100
BEP = BEP = P = 8.33 = 21,000 X = 2,52,100
Ratio 8.33
V 100
BEP = Rs. 2,52,100
If sales are 60,000
Sales = 60,000 X 6 = 3,60,000

31
Variable cost = 5.5 X 60,000 = 3,30,000
Calculation of contribution
Contribution = Sales – Variable cost
Contribution = 3,60,000 – 3,30,000
Contribution = Rs. 30,000
Calculation of Profit
Profit = Contribution – Fixed cost
= 30,000 – 21,000
Profit = Rs. 9,000
Sales volume required to earn a profit of Rs. 5,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
21,000+5,000
100
Sales to earn Desired profit = 8.33 = 21,000 X = 3,12,125
8.33
100
Sales to earn Desired profit = Rs. 3,12,125
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 52,000 X 6 – 2,52,100
Margin of Safety = Rs. 59,900 or Rs. 60,000
Ex. 8. Lakshmishree Ltd., has prepared the following budge estimates
Sales units 15,000
Fixed expenses Rs. 34,000
Sales value Rs. 1,50,000
Variable cost Rs. 6 per unit
You are required to:
i) Find the P/V ratio, Break Even Point and Margin of Safety
ii) Calculate the revised P/V ratio, Break even point and Margin of Safety in each of the following
cases:
a) Decrease of 10% in selling price
b) Increase 10% in Variable cost
c) Increase in sales volume by 2,000 units
Current year position
Calculation of P/V ratio
Sales−Variable cost 1, 50,000−(15,000 X 6) 1, 50,000−90,000
P/V ratio = X 100 = X 100 = =
Sales 1 ,50,000 1, 50,000
40%
P/V ratio = 40%
Calculation of fixed cost
¿ Cost 34,000
100
BEP = P = 40 = 34,000 X = 85,000
Ratio 40
V 100
BEP = Rs. 85,000
Calculation of Margin of Safety
32
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 1,50,000 – 85,000
Margin of Safety = Rs. 65,000
If sales price is decreased by 10%
Old sales price Rs. 1,50,000
Less: Decreased by 10% Rs. 15,000
New sales price Rs. 1,35,000
Calculation of P/V ratio
Sales−Variable cost 1, 35,000 – 90,000
P/V ratio = X 100 = X 100 = 33.33%
Sales 1 , 35,000
P/V ratio = 33.33%
Calculation of fixed cost
¿ Cost 34,000
100
BEP = P = 33.33 = 34,000 X = 1,02,010
Ratio 33.33
V 100
BEP = Rs. 1,02,010
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 1,35,000 – 1,02,010
Margin of Safety = Rs. 32,990
If increase in variable cost by 10%
Old variable cost Rs. 90,000
Less: Increased by 10% Rs. 9,000
New sales price Rs. 99,000
Calculation of P/V ratio
Sales−Variable cost 1, 50,000 – 99,000
P/V ratio = X 100 = X 100 = 34%
Sales 1 , 50,000
P/V ratio = 34%
Calculation of fixed cost
¿ Cost 34,000
100
BEP = P = 34 = 34,000 X = 1,00,000
Ratio 34
V 100
BEP = Rs. 1,00,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 1,50,000 – 1,00,000
Margin of Safety = Rs. 50,000
If sales volume increased by 2,000 Units
Old sales volume 15,000 units
Add:: Increased 2,000 units
New sales volume 17,000 units
Calculation of new sales and Variable cost
Sales = Number of units X Sales per unit
= 17,000 X 10 = 1,70,000
33
∴ New sales = Rs. 1,70,000
New variable cost = Number of units X variable cost per unit
= 17,000 X 6 = 1,02,000
New variable cost = Rs. 1,02,000
Calculation of P/V ratio
Sales−Variable cost 1, 70,000 – 1 , 02,000
P/V ratio = X 100 = X 100 = 40% P/V ratio = 40%
Sales 1 ,70,000
Calculation of P/V ratio
¿ Cost 34,000
100
BEP = P = 40 = 34,000 X = 85,000
Ratio 40
V 100
BEP = Rs. 85,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 1,70,000 – 85,000
Margin of Safety = Rs. 85,000
Ex. 9. The relevant figures of ABC Ltd., are as under calculate:
a) BEP in terms of sales and units
b) No. of units (quantity) that must be sold to earn a profit of Rs. 60,000 per year
i) Sales price per unit Rs. 20
ii) Variable cost per unit (manufacturing) Rs. 11
iii) Variable cost per unit (Selling) Rs. 3
iv) Fixed factory overheads per year Rs. 5,40,000
v) Fixed selling cost per year Rs. 2,52,000
Calculation of variable cost
ii) Variable cost per unit (manufacturing) Rs. 11
iii) Variable cost per unit (Selling) Rs. 3
Total variable cost Rs. 14
Calculation of P/V ratio
Sales−Variable cost 20 – 14
P/V ratio = X 100 = X 100 = 30% P/V ratio = 30%
Sales 100
Calculation of fixed cost
iv) Fixed factory overheads per year Rs. 5,40,000
v) Fixed selling cost per year Rs. 2,52,000
Total fixed cost Rs. 7,92,000
Calculation of BEP
¿ Cost 7 , 92,000
100
BEP = P = 30 = 7,92,000 X = 26,40,000
Ratio 30
V 100
BEP = Rs. 26,40,000
Sales volume required to earn a profit of Rs. 60,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
7 , 92,000+60,000
100
Sales to earn Desired profit = 30 = 8,52,000 X = 28,40,000
30
100
Sales to earn Desired profit = Rs. 28,40,000
Calculation of number of units
34
 Required sales 28 , 40,000
Units = = = 1,42,000 units
Sales price per unit 20
Number of units required to earn a profit of Rs. 60,000 = 1,42,000 units
Ex. 10. From the information given below find out:
a) P/V ratio b) Fixed cost c)BEP sales d) Profit when sales are Rs. 1,00,000
e) Sales required to earn profit of Rs. 15,000
Period Sales (Rs.) Cost (Rs.) Profit (Rs.)
I 3,60,000 3,33,000 27,000
II 4,20,000 3,81,000 39,000
Calculation of P/V ratio:
Change∈Profit
P/V ratio = X 100
Change∈Sales
12,000
P/V ratio = X 100 = 20%
60,000
P/V ratio = 20%
Calculation of Fixed cost:
Fixed cost = Contribution - Profit
Contribution = Sales X P/V ratio
20
I Period : 3,60,000 X = 72,000
100
Fixed cost = 72,000 – 27,000 = 45,000
20
II period: 4,20,000 X = 84,000
100
Fixed cost = 84,000 – 39,000 = 45,000
Calculation of Break-even point
¿Cost
Break-even-point =
P /V ratio
45,000
100
= 20 = 45,000 X = 2,25,000
20
100
Break-even-point = Rs. 2,25,000
Profit when sales are Rs. 1,00,000
Contribution = Sales X P/V ratio
20
= 1,00,000 X = 20,000
100
Profit = Contribution – Fixed cost
= 20,000 – 45,000 = Loss Rs. 25,000
Loss = Rs. 25,000
Calculation of required sales to earn a profit of Rs. 15,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
45,000+15,000
100
Sales to earn Desired profit = 20 = 60,000 X = 3,00,000
20
100
Sales to earn Desired profit = Rs. 3,00,000

35
Ex. 11. Shara Airlines can carry a maximum of 6,000 passengers per month on one of its routes
at a fare of Rs. 1,700. Variable cost are Rs. 500 per passenger and fixed costs are Rs. 30,00,000
per month. Estimated revenue collection per month is Rs. 68,00,000
Calculate:
a) No. of passengers to carry to reach Break even point
b) Break even collections
c) Break even percentage capacity
d) Margin of Safety
e) Required revenue collection if management sets a profit target of Rs. 10,00,000 per month
Given information and their treatment
Here Passengers = 6,000 = Number of units 6,000
Fair charges = Rs. 1,700 = Sales per unit Rs. 1,700
Variable cost per passenger Rs. 500 = Variable cost per unit = Rs. 500
Fixed cost = Rs. 30,00,000 per month
Collection per month Rs. 68,00,000 = Total sales per month Rs. 68,00,000
Calculation of contribution per passenger
Contribution = Sales – Variable cost
Contribution = 1,700 – 500
Contribution = 1,200
Calculation BEP passenger
¿Cost
Break-even-point =
P /V ratio
Sales−Variable cost 1,700 – 500
P/V ratio = X 100 = X 100 = 70.59%
Sales 1,700
P/V ratio = 70.59%
30 ,00,000
100
Break-even-point = 70.59 = 30,00,000 X = 42,49,893
70.59
100
Break-even-point = Rs. 42,50,000
Or
¿ cost 20 , 00,000
BEP passenger = = = 2,500
Contribution per passenger 1,200
BEP passenger = 2,500 passengers
Calculation of BEP collection
BEP collection = BEP per passenger X Rate per passenger
= 2,500 X 1,700 = 42,50,000
BEP collection = Rs. 42,50,000
Calculation of BEP % capacity
BEP passengers 2,500
BEP % capacity = X 100 = X 100 = 41,67%
Total per passengers 6,000
BEP % capacity = 41.67%
Required Revenue collection to earn a profit of Rs. 10,00,000
(Required sales to earn a profit of Rs. 10,00,000)

36
 ¿ Cost + Desired Profit
Revenue collection to earn Desired profit = P
Ratio
V
30 ,00,000+ 10 , 00,000
100
Revenue collection to Desired profit = 7.059 = 40,00,000 X = 56,66,525
70.59
100
Revenue collection to Desired profit = Rs. 56,66,525
Calculation of Margin of Safety
Margin of Safety = Actual collections – BEP collections
Margin of Safety = 68,00,000 – 42,50,000
Margin of Safety = Rs. 25,50,000

Ex. 12. Find out from the following:

1) P/V ratio 2) BEP 3) Net profit from sales of Rs. 3,00,000 and sales to be effected to
earn a net profit of Rs. 70,000
Position of the company for the year 2003:
Rs.
Sales 2,00,000
Variable overhead 1,50,000
Gross profit 50,000
Fixed overhead 15,000
Net profit 35,000
Calculation of P/V ratio
Sales−Variable cost 2 ,00,000 – 1, 50,000
P/V ratio = X 100 = X 100 = 25%
Sales 2 , 00,000
P/V ratio = 25%
Calculation of Break-even point
¿Cost
Break-even-point =
P /V ratio
15,000
100
= 25 = 1,50,000 X = 60,000
25
100
Break-even-point = Rs. 60,000
Profit when sales are Rs. 1,00,000
Contribution = Sales X P/V ratio
25
= 3,00,000 X = 75,000
100
Profit = Contribution – Fixed cost
= 75,000 – 15,000 = 60,000
Profit = Rs. 60,000
Calculation of required sales to earn a profit of Rs. 70,000

37
 ¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
15,000+70,000
100
Sales to earn Desired profit = 25 = 85,000 X = 3,00,000
25
100
Sales to earn Desired profit = Rs. 3,00,000
Ex. 13. M/s Kulkarni & Sons produces two type of products Ordinary and Deluxe. They supply you
the following information:
Ordinary Deluxe
Per unit Rs. Per unit Rs.
Selling price 440 550
Raw material (Rs. 10 per kg) 90 120
Direct wages (Rs. 4 per hour) 64 80
Variable overhead (Factory) 15 40
Variable overhead (Office) 6 10
Total fixed overhead Rs. 3,00,000
Advice Management on the following
a) When the labour supply is the key factor
b) When the material is in short supply
And also find profit or loss when 500 units of Ordinary and 500 units of Deluxe are sold
Calculation of variable cost
Particulars Ordinary Deluxe

Raw materials (Rs. 10 per kg) 90 120

Direct wages (Rs. 4 per hour) 64 80

Variable overhead – Factory 15 40

Variable overhead – Office 6 10

Total 175 250

Calculation of contribution
Contribution – Sales – Variable cost
Ordinary Deluxe
Contribution = 440 – 175 = 265 = 550 – 250 = 300
When Labour supply is the key factor
Contribution per labour hour
Contribution 265 300
Contribution per hour = = = 16.56 = = 15
Labour hour 16 20
Comment: Product Ordinary is preferred because contribution per hour is more
When material is short supply
Contribution per kg
Contribution 265 300
Contribution per kg = = = 6.22 = = 5.45
material kg 44 55
38
Comment: Product Ordinary is preferred because contribution per kg of material is more
Calculation of profit or loss
Particulars Ordinary Deluxe

Sales price

500 X 440 2,20,000 -

500 X 55 - 2,75,000

Less: Variable cost

500 X 175 87,500 -

500 X 250 - 1,25,000

Contribution 1,32,500 1,50,000

Less: Fixed cost 3,00,000 3,00,000

Loss 1,67,500 1,50,000

Ex. 14. Swarali Co., Ltd., provides the following details:

Per unit (Rs.)
Selling price 40
Raw material 10
Direct Labour 4
Variable manufacturing overhead 7
Sales commission 10% of sales price
Fixed factory overheads Rs. 1,60,000 p.a.
Fixed selling overheads Rs. 20,000 p.a.
a) Calculate BEP in sales value and quantity
b) Find Margin of Safety at 20,000 units sales at Rs. 40 each
c) How many units must be sold to earn a profit of Rs. 1,30,000
d) Determine revised BEP if fixed factory overhead goes up by Rs. 20,000

Calculation of variable cost

Direct material Rs. 10
Direct material Rs. 4
Manufacturing overheads Rs. 7
Sales commission 10% of sales price Rs. 4
Total variable cost Rs. 25
Calculation of P/V ratio
Sales−Variable cost 40 – 25
P/V ratio = X 100 = X 100 = 37.5%
Sales 40
P/V ratio = 37.5%
Calculation of fixed cost
Fixed factory overheads per year Rs. 1,60,000
Fixed selling cost per year Rs. 20,000

39
 Total fixed cost Rs. 1,80,000
Calculation of BEP
¿ Cost 1, 80,000
100
BEP = P = 37.5 = 1,80,000 X = 4,80,000
Ratio 37.5
V 100
BEP = Rs. 4,80,000
BEP sales 4 ,80,000
BEP units = = = 12,000 units
Sales per unit 40

Sales volume required to earn a profit of Rs. 60,000

¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
7 , 92,000+60,000
100
Sales to earn Desired profit = 30 = 8,52,000 X = 28,40,000
30
100
Sales to earn Desired profit = Rs. 28,40,000
Calculation of number of units
Required sales 28 , 40,000
Units = = = 1,42,000 units
Sales price per unit 20
Number of units required to earn a profit of Rs. 60,000 = 1,42,000 units
Calculation of Margin of Safety
Margin of Safety = Actual sales – BEP sales
Margin of Safety = 20,000 X 40 – 4,80,000
Margin of Safety = 8,00,000 – 4,80,000 = 3,20,000
Margin of Safety = Rs. 3,20,000
Calculation of required sales to earn a profit of Rs. 70,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
1, 80,000+1 , 30,000
100
Sales to earn Desired profit = 37.5 = 3,10,000 X = 8,26,667
37.5
100
Sales to earn Desired profit = Rs. 8,26,667
Calculation of number of units
Required sales
Number of units =
Sales per unit
8 ,26,667
Nymber of units = = 20,667 units
40
Number of units = 20,667 units

Ex. 15. Following are the budgeted data relating to X Ltd., & Y Ltd., producing identical products:
Particulars X Ltd., Y Ltd.,

Rs. Rs. Rs. Rs.

Sales 6,00,000 6,00,000

40
 Less: Fixed cost 60,000 1,40,000

Variable cost 4,80,000 5,40,000 4,00,000 5,40,000

Budgeted profit 60,000 60,000

a) Calculate B.E.P., P/V ratio and margin of safety of each company

b) State which company will earn more profit if:
i) Sales increased to Rs. 7,20,000
ii) Sales increased to Rs. 3,60,000 (KUD 2015)
a) Calculate B.E.P., P/V ratio and margin of safety of each company
Formula X Ld., Y Ltd.,

Calculation of Contribution Contribution Contribution

Contribution = Sales – Variable cost = 6,00,000 – 4,80,00 = 6,00,000 – 4,00,000

= 1,20,000 2,00,000

Calculation of P/V ratio P/V ratio P/V ratio

Contribution 1 ,20,000 2 ,00,000

P/V ratio = = = 0.20 = = 33.33
Sales 6 , 00,000 6 , 00,000

1 1 1
Or 20% or Or 33 % or
5 3 3

Calculation of BEP in amount BEP BEP

¿ cost 60,000 1 , 40,000

BEP = = X 100 = BEP = X 100 = 33
P /V ratio 3 ,00,000 4 ,20,000
20% 1
%
3

Calculation of Margin of safety Margin of safety Margin of safety

M/S = Actual Sales – BEP Sales =6,00,000 –3,00,000 =6,00,000 –4,20,000

Rs. 3,00,000 Rs. 1,80,000

Revised Contribution when sales New Contribution New Contribution

is
1 1
= 7,20,000 X = = 7,20,000 X ==
Rs. 7,20,000 5 3
1,44,000 2,40,000
Contribution = Sales X P/V ratio

Calculation of Profit when sales is Profit Profit

Rs. 7,20,000 = 1,44,000 – 60,000 = 2,40,000 – 1,40,000

41
Profit = Contribution – Fixed cost = 84,000 = 1,00,000

Y Ltd., earns more profit compare to X Ltd.,

Revised Contribution when sales New Contribution New Contribution

is
1 1
= 3,60,000 X == = 3,60,000 X ==
Rs. 3,60,000 5 3
72,000 1,20,000
Contribution = Sales X P/V ratio

Calculation of Profit when sales is Profit Profit

Rs. 3,60,000
= 72,000 – 60,000 = 1,20,000 – 1,40,000
Profit = Contribution – Fixed cost
= 12,000 = - 20,000 (Loss)

X Ltd., earns more profit compare to Y Ltd.,

Ex. 16. Given the following information:

Rs.
Units sold 5,00,000
Fixed cost 7,50,000
Variable cost per unit 2
Selling price per unit 5
You are required to determine:
i) Break-even-point in units and value
ii) The sales needed for a profit of Rs. 6,00,000 in units and value
iii) Margin of safety if profit available Rs. 6,00,000
iv) The profit if 4,00,000 units are sold at Rs. 6 per unit. (KUD 2016)
i) Break-even-point in units and value
Contribution = Sales – Variable cost = 5 – 2 = 3
Contribution 3
P/V Ratio = = = 60%
Sales 5
P/V Ratio = 60%
¿ cost 7 ,50,000 100
B.E.P. (in Units) = = = 7,50,000 X = 12,50,000 Units
P /V Ratio 60 % 60
B.E.P. (in Units) = 12,50,000 units
¿ cost X Selling price
B.E.P. (in Sales values) =
Sales per unit – Variable cost per unit
7 ,50,000 X 5
= = 12,50,000
5−2
B.E.P. (in Sales values) = 12,50,000

42
ii) The sales needed for a profit of Rs. 6,00,000 in units and value
¿ cost + Desired profit
Required sales =
P/V Ratio
Sales – Variable cost 5−2
P/V Ratio = = X 100 = 60%
Sales 5
P/V Ratio = 60%
7 ,50,000+ 6 , 00,000
100
Required sales = 60 = 13,50,000 X = 22,50,000
60
100
Required sales = Rs. 22,50,000
Sales 22 ,50,000
Required Units = = = 4,50,000 Units
Sales per unit 5
Required Units = 4,50,000 units
iii) Margin of safety if profit available Rs. 6,00,000
Profit
Margin of Safety =
P /V Ratio
6 , 00,000
100
Margin of Safety = = 60 = 6,00,000 X = 10,00,000
60
100
Margin of Safety = Rs. 10,00,000
iv) The profit if 4,00,000 units are sold at Rs. 6 per unit
Profit = Sales – Variable – Fixed cost
= 4,00,000 X 6 – 4,00,000 X 2 – 7,50,000
= 24,00,000 – 8,00,000 – 7,50,000
Profit = 8,50,000
Ex. 17. Ravi Ltd., has plant which produces two types of products namely X and Y.
Following information is given to you for each unit of product:
Particulars Product ‘X’ Rs. Product ‘Y’ Rs

Raw materials ( 2 kgs) 12 -

Raw materials (3kgs) - 18

Wages 4 4

Selling price 30 40

Variable overhead 100% of direct wages and Fixed cost Rs. 1,20,000
a) Calculate P/V ratio of each product
b) State which product is preferable if material is in short supply
c) State which of the following sales mix will you recommend.
Product X Product Y
Sales Mix I 14,000 units 6,000 units
Sales Mix II 10,000 units 10,000 units
Sales Mix III 8,000 units 12,000 units
(KUD 2016)
a) Calculation of P/V ratio of each product
Calculation of variable cost
43
 X Y
Raw material 12 18
Wages 4 4
Variable overhead 4 4
Total variable cost 20 26
Contribution = Sales – Variable cost
X = 30 – 20 = 10 Y = 40 – 26 = 14
Calculation of P/V Ratio
Contribution 10 1 14 7
P/V Ratio = X= = Y= =
Sales 3 3 40 20
b) If material is in short supply
Contribution
Contribution per kg =
No . of kgs of material
10 14
X= =5 Y= = 4.33
2 3
Product ‘M’ is preferable
3) Calculation of profit on the basis of sales mix
Particulars Sales Mix I Sales Mix II Sales Mix III

Contribution

Contribution per unit X No. of units

M 14,000 X 10 1,40,000

N 6,000 X 14 84,000

M 10,000 X 10 1,00,000

N 10,000 X 14 1,40,000

M 8,000 X 10 80,000

N 12,000 X 14 1,68,000

Contribution 2,24,000 2,40,000 2,48,000

Less Fixed cost 1,20,000 1,20,000 1,20,000

Profit 1,04,000 1,20,000 1,28,000

Recommendation: Sales Mix III is recommended because it gives more profit

Ex. 18. The following figures are obtained from the accounts of “Goldstar Ltd.,”
Year Sales Profit/Loss
(Units) Rs.
2015 4,000 5,000 (Loss)
2016 6,000 5,000 (Profit)
The Selling per unit can be assumed to be Rs. 20
Calculate: a) P/V Ratio b) Fixed cost c) Breakeven sales d) Profit at sales Rs. 2,00,000 e) Sales ro
earn a profit Rs. 30,000
(KUD 2017)
44
Calculation of change in profit

Year Sales Sales Rs. Profit/Loss

(Units) Rs.

2015 4,000 4,000 X 20 = 80,000 5,000 (Loss)

2016 6,000 6,000 X 20 = 1,20,000 5,000 (Profit)

Change 40,000 10,000 Profit

In 2016 profit is Rs. 5,000. It means this profit is arrived after write off 2015 loss Rs. 5,000.
Therefore total profit = Rs.10,000

Calculation of P/V ratio P/V ratio

Change∈Profit 10,000 1
P/V ratio = = = 0.25 Or 25% or
Change∈Sales 40,000 4

Calculation of Fixed cost 2015

Contribution = Sales X P/V Ratio 1

80,000 X = 20,000
4

2016

1
1,20,000 X = 30,000
4
Fixed cost = Contribution + Loss
Fixed cost = 20,000 + 5,000 = 25,000

0r
0r

Fixed cost = Contribution - Loss

Fixed cost = 20,000 - 5,000 = 25,000

Calculation of BEP in sales BEP

¿ cost 25,000 100

BEP = = = 25,000 X = 1,00,000
P /V ratio 25 % 25

Calculation of profit when sales Rs. 2,00,000 Profit

New Contribution = Sales X P/V Ratio 25

= 2,00,000 X = 50,000
100
Profit = Contribution – Fixed cost
= 50,000 – 25,000 = 25,000

Calculation of sales to earn profit of Rs. Required sales

30,000

45
 25,000+30,000
Required sales = -
25 %
¿+ Profit
Required sales =
P /V Ratio 100
Required sales = 55,000 X =
25
2,20,000

Ex. 19. Two years sales and profits are given below:
Year Sales (Rs.) Profit (Rs.)
2017 6,00,000 80,000
2018 6,80,000 1,00,000
Calculate: a) P/V ratio b) BEP, c) Fixed cost, d) Margin of safety in 2017 and 2018
e) Sales required to earn a profit of Rs. 1,60,000 (KUD 2019)
a) Calculation P/V ratio
Change∈Profit
P/v ratio =
Change ∈sales
20,000
P/v ratio = X 100 = 25%
80,000
P/v ratio = 25%
Calculation of Contribution
25
Contribution = Sales X P/V ratio 2017= 6,00,000 X =1,50,000
100
25
2018 = 6,80,000 X = 1,70,000
100
c) Calculation of Fixed cost
Fixed cost = Contribution – Profit
2017= 1,50,000 – 80,000 =70,000 2018 = 1,70,000 – 1,00,000 = 70,000
b) Calculation BEP
¿ cost 70,000
100
BEP = P 2017 = 25 = 70,000 X =2,80,000
ratio 25
V 100
70,000
100
2018 = 25 = 70,000 X =2,80,000
25
100
d) Margin of safety
M/S = Actual sales – BEP sales
2017 = 6,00,000 – 2,80,000 = 3,20,000
2018 = 6,80,000 – 2,80,000 = 4,00,000
e) Sales required to earn profit of Rs. 1,60,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
70,000+1 ,60,000
100
= 100 = 2,30,000 X = 9,20,000
25
25
Ex. 20. The following details relate to the manufacturing of two products X and Y

46
 Product X Product Y
(Per unit) Rs. (Per unit)
Rs.
Direct material (Rs. 10 per kg) 20 40
Direct wages 28 20
Variable overhead 04 10
Sales price 80 100
Total fixed overheads Rs. 1,20,000
a) Which product is profitable if raw material is in short supply?
b) Which of the following sales mix is most profitable?
Product Mix Product X Product Y
I 5,000 units 3,000 units
II 4,000 units 4,000 units
III 3,000 units 5,000 units
(KUD 2020)
Calculation of variable cost and contribution
Particulars X Y

Material 20 40

Wages 28 20

Overheads 4 10

Variable cost 52 70

Sales price 80 100

Contribution 28 30

a) When raw material is in short supply

Contribution 28 30
Contribution per kg. of material = X= = 14 Y = = 7.50
No . of kg , 2 4
Contribution per kg of raw material of product ‘X’ is higher than ‘Y’ Hence Product ‘X’ is profitable
b) Calculation of profit on the basis of sales mix
I) Sales mix 5,000 units of II) Sales mix 4,000 units of III) Sales mix 3,000 units of
product X & 3,000 units of product X & 4,000 units of product X & 5,000 units of
Y Y Y

X 5,000 X 28 = 1,40,000 X 4,000 X 28 = 1,12,000 X 3,000 X 28 = 84,000

Y 3,000 X 30 = 90,000 Y 4,000 X 30 = 1,20000 Y 5,000 X 30 = 1,50,000

Total contribution 2,30,000 Total contribution 2,32,000 Total contribution 2,34,000

Less: Fixed cost 1,20,000 Less: Fixed cost 1,20,000 Less: Fixed cost 1,20,000

Profit 1,10,000 Profit 1,12,000 Profit 1,14,000

Recommendation: Sales Mix III is recommended because it gives more profit.

47
Ex. 21. From the following information relating to Chandini Ltd.,
Find out: a) Contribution b) BEP c) Margin of Safety d) Profit
Rs.
Total Fixed cost 4,500
Total variable cost 7,500
Total sales 15,000
Units sold 5,000 units
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 15,000 – 7,500 = 7,500
Contribution = 7,500
Calculation of P/V ratio
Sales−Variable cost 15,000 – 7,500
P/V ratio = X 100 = X 100 = 50%
Sales 15,000
P/V ratio = 50%
Calculation of BEP
¿ Cost 4,5000
100
BEP = P = 50 = 4,500 X = 9,000
Ratio 50
V 100
BEP = Rs. 9,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 15,000 – 9,000 = 6,000
Margin of Safety = Rs. 6,000
Calculation of Profit
Profit = Contribution – Fixed cost
Profit = 7,500 – 4,500 Profit = Rs. 3,000
Ex. 22. The sales and cost during the two periods were as follows:
Total sales (Rs.) Total cost (Rs.)
Period I 40,00,000 36,00,000
Period II 60,00,000 52,22,000
Calculate:
a) P/V ratio b) BEP sales c) Sales to earn a profit of Rs. 10,00,000
d) Profit when sales are Rs. 50,00,000
Calculation of Profit
Profit = Total sales – Total cost
Period I : Profit = 40,00,000 – 36,00,000 = 4,00,000
Period II: Profit = 60,00,000 – 52,00,000 = 8,00,000
∴ Change in profit = 8,00,000 – 4,00,000 = 4,00,000
Change in sales = 60,00,000 – 40,00,000 = 20,00,000
a) Calculation P/V ratio
Change∈Profit
P/v ratio =
Change ∈sales
4 , 00,000
P/v ratio = X 100 = 20%
20 , 00,000
P/v ratio = 20%
Calculation of Contribution

48
 20
Contribution = Sales X P/V ratio Period I: = 40,00,000 X = 8,00,000
100
20
Period II: = 60,00,000 X = 12,00,000
100
c) Calculation of Fixed cost
Fixed cost = Contribution – Profit
Period I = 8,00,000 – 4,00,000 = 4,00,000 Period II = 12,00,000 – 8,00,000 = 4,00,000
Fixed cost = Rs. 4,00,000
b) Calculation BEP
¿ cost
BEP = P
ratio
V
4 ,00,000
100
BEP = 20 = 4,00,000 X = 2,00,000
20
100
BEP = 2,00,000
c) Sales required to earn profit of Rs. 10,00,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
4 ,00,000+10 ,00,000
100
= 20 = 14,00,000 X = 70,00,000
20
100
Required sales = Rs. 70,00,000
d) Calculation of profit when sales Rs. 2,00,000
New Contribution = Sales X P/V Ratio
20
= 50,00,000 X = 10,00,000
100
Profit = Contribution – Fixed cost
Profit = 10,00,000 – 4,00,000 = 6,00,000
Profit = 6,00,000
Ex. 23. Ashok Company Ltd., provides the budget estimate for the year 2020-21.
Fixed cost Rs. 2,00,000 Variable cost 60% of sales
Calculate:
a) BEP b) New BEP if fixed cost increased by Rs. 50,000
c) New BEP if variable cost increased by 15% d) New BEP if sales price increased by 20%
When the variable cost is given in percentage sales = Rs. 100
Sales−Variable costt
P/V ratio =
Sales
100−600
P/V ratio = X 100 = 40%
100
P/V ratio = 40%
Calculation BEP

49
 ¿ cost
BEP = P
ratio
V
2 ,00,000
100
BEP = 40 = 2,00,000 X = 5,00,000
40
100
BEP = Rs. 5,00,000
Calculation New BEP if fixed cost is increased by Rs. 50,000
Old fixed cost Rs. 2,00,000
Add: Increased by 20% Rs. 50,000
New fixed cost Rs. 2,50,000
¿ cost
BEP = P
ratio
V
2 ,50,000
100
BEP = 40 = 2,50,000 X = 6,25,000
40
100
BEP = Rs. 5,00,000
Calculation New BEP if variable cost is increased by 15%
Old Variable cost Rs. 60
Add: Increased by 15% Rs. 15
New fixed cost Rs. 75
Sales−Variable costt
P/V ratio =
Sales
100−75
P/V ratio = X 100 = 25%
100
P/V ratio = 25%
¿ cost
BEP = P
ratio
V
2 ,00,000
100
BEP = 25 = 2,00,000 X = 8,00,000
25
100
BEP = Rs. 8,00,000
Calculation New BEP if variable cost is increased by 15%
Old sales price Rs. 100
Add: Increased by 20% Rs. 20
New fixed cost Rs. 120
Sales−Variable costt
P/V ratio =
Sales
120−60
P/V ratio = X 100 = 50%
120
P/V ratio = 50%
¿ cost
BEP = P
ratio
V

50
 2 ,00,000
100
BEP = 50 = 2,00,000 X = 4,00,000 BEP = Rs. 4,00,000
50
100
Ex. 24. Calculate P/V ratio, BEP in units and rupees from the following
Budgeted production 5,00,000 units
Variable cost per unit Rs. 20
Fixed cost Rs. 20,00,000
The selling price is fixed to yield 20% profit on selling price
Calculation of P/V ratio
Sales−Variable costt
P/V ratio =
Sales
100−20
P/V ratio = X 100 = 80% P/V ratio = 80%
100
Calculation BEP
¿ cost
BEP (Sales) = P
ratio
V
20 , 00,000
100
BEP (Sales) = 80 = 20,00,000 X = 25,00,000
80
100
BEP (Sales) = Rs. 25,00,000
BEP sales
BEP (Units) =
Sales price per unit
25 , 00,000
BEP (Units) = = 25,000 BEP (Units) = 25,000 Units
100
Ex. 25. Using the following data calculate:
a) Contribution b) Amount of Profit or Lossc) Sales required to earn profit of Rs. 1,60,000
d) Margin of Safety on sales of Rs. 12,00,000
Fixed cost Rs. 8,00,000 and P/V ratio 25%
Calculation of Contribution
Contribution = Sales X P/V ratio
25
Contribution = 8,00,000 X = 2,00,000
100
Contribution = Rs. 2,00,000
Calculation of profit/loss
Profit = Contribution – Fixed cost
= 2,00,000 – 2,50,000
Loss = 50,000
Sales required to earn profit of Rs. 1,60,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
Contribution
P/V ratio =
Sales
2 ,00,000
P/V ratio = X 100 = 25% P/V ratio = 25%
8 , 00,000
2 ,50,000+1 , 60,000
100
Required sales = 25 = 4,10,000 X = 16,40,000
25
100
Required sales = Rs. 16,40,000

51
Calculation of Margin of Safety
Profit
Margin of Safety = P
Ratio
V
Contribution = Sales X P/V ratio
∴ Profit = Contribution – Fixed cost
Contribution = Sales X P/V ratio
25
Contribution = 12,00,000 X = 3,00,000
100
∴ Profit =3,00,000 – 2,50,000 = 50,000
50,000
100
Margin of Safety = 25 = 50,000 X = 2,00,000
25
100
Margin of Safety = Rs. 2,00,000

Ex. 26. The P/V ratio of Rajendra Ltd., is 30% and Margin of Safety is 50%
Work out: a) Net profit and BEP when sales are Rs. 4,50,000 b) Fixed cost
c) Required sales to earn a profit of Rs. 1,40,000 d) Profit when sales are Rs. 6,00,000
Calculation of BEP sales
Margin of Safety = Actual Sales – BEP Sales
∴ BEP Sales = Actual Sales – Margin of safety sales
BEP Sales = 4,50,000 – (4,50,000 X 50% of 4,50,000
BEP Sales = 4,50,000 – 2,25,000
BEP sales = Rs. 2,25,000
Calculation of % of profit
% of profit = % of P/V ratio X % of Margin of Safety
30 50
= X X 100 = 15%
100 100
% of profit = 15% on sales
∴ Profit = Sales X % of profit
15
Profit = 4,50,000 X = 67,500
100
∴ Profit = Sales X P/V ratio
30
Profit = 4,50,000 X = 67,500
100
Profit = Rs. 67,500
Calculation of Fixed cost
¿ cost
BEP = P
ratio
V
∴ Fixed cost = BRP sales X P/V ratio
30
Fixed cost = 2,25,000 X = 67,500 Fixed cost = Rs. 67,500
100
Calculation of required sales to earn a profit of Rs. 1,40,000

52
 ¿ cost + Desired Profit
Required sales = P
Ratio
V
67,500+1 , 40,000
100
Required sales = 30 = 2,07,500 X = 6,91,666.66 16,40,000
30
100
Required sales = Rs. 6,66,667
Calculation of profit when sales Rs. 2,00,000
New Contribution = Sales X P/V Ratio
30
= 6,00,000 X = 1,80,000
100
Profit = Contribution – Fixed cost
Profit = 1,80,000 – 67,500 = 1,12,500
Profit = 1,12,500
Ex. 27. Following information is given in respect of Amit Firm:
Fixed cost Rs. 24,000 Sales 10,000 units
Sales price per unit Rs. 20 BEP units 6,000
Calculate: a) P/V ratio b) Margin of Safety c) Profit if sales are Rs. 2,40,000
d) Find P/V ratio and BEP when fixed cost is decreased by 10%
Calculation of BEP sales
BEP Sales = BEP units X Sales per unit
BEP Sales = 6,000 X 20
BEP Sales = Rs. 1,20,000
Calculation of P/V ratio
¿ cost
BEP = P
ratio
V
¿ cost
∴ P/V ratio = X 100
BEP sales
24,000
P/V ratio = X 100
1, 20,000
P/V ratio = 20%
Calculation of Actual sales
Sales = Number of units X rate per unit
Sales = 10,000 X 20 = 2,00,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 2,00,000 – 1,20,000
Margin of Safety = Rs. 80,000
Calculation of profit if the sales are Rs. 2,40,000
Contribution = Sales X P/V ratio
20
Contribution = 2,40,000 X = 48,000
100
Profit = Contribution – Fixed cost
Profit = 48,000 – 24,000 = 2,000

53
Profit = Rs. 24,000
Calculation of P/V ratio when fixed cost is decreased by 10%
Old fixed cost Rs. 24,000
Less: Decreased by 10% Rs. 2,400
New fixed cost Rs. 21,600
¿ cost
BEP = P
ratio
V
¿ cost
∴ P/V ratio = X 100
BEP sales
21,600
P/V ratio = X 100 = 18%
1, 20,000
P/V ratio = 18%
Ex. 28. From the following particulars find out:
i) P/V ratio ii) BEP iii) Net profit from the sales of Rs. 1,30,000
iv) Sales to be effected to earn a net profit of Rs. 10,000
The position of the company for the year 2001
Rs.
Sales 1,20,000
Variable overheads 96,000
Gross profit 24,000
Fixed overheads 16,000
Net profit 8,000
Calculation of P/V ratio
Sales−Variable cost 1, 20,000 – 96,000
P/V ratio = X 100 = X 100 = 20%
Sales 1 , 20,000
P/V ratio = 20%
Calculation of BEP
¿ Cost 16,000
100
BEP = P = 20 = 16,000 X = 80,000
Ratio 20
V 100
BEP = Rs. 80,000
Sales volume required to earn a profit of Rs. 10,000
¿ Cost + Desired Profit
Sales to earn Desired profit = P
Ratio
V
16,000+10,000
100
Sales to earn Desired profit = 20 = 26,000 X = 1,30,000
20
100
Sales to earn Desired profit = Rs. 1,30,000
Calculation of sales when the sales are Rs. 1,30,000
Contribution = Sales X P/V ratio
20
Contribution = 1,30,000 X = 26,000
100
Profit = Contribution – Fixed cost
Profit = 26,000 – 16 = 10,000
Profit = Rs. 10,000
Ex. 29. The following information is obtained from Kumar Ltd.,:
Rs.

54
 Sales 1,50,000
Variable cost 90,000
Fixed cost 34,000
Find out: i) P/V ratio and BEP
ii) Calculate revised P/V ratio and BEP If:
a) 10% decrease in selling price b) 10% decrease in fixed cost
Calculation of P/V Ratio
Sales−Variable cost
P/V ratio = X 100
Sales
1, 50,000 – 90,000
P/V ratio = X 100 = 40%
1 , 50,000
P/V ratio = 40%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
34,000
100
BEP = 40 = 34,000 X = 85,000
40
100
BEP = Rs. 85,000
10% Decrease in selling price
Old selling price Rs. 1,50,000
Less: Decreased by 10% Rs. 15,000
New selling price Rs. 1,35,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
1, 35,000 – 90,000
P/V ratio = X 100 = 33.33%
1 , 35,000
P/V ratio = 33.33%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
34,000
100
BEP = 33.33 = 34,000 X = 1,02,010 BEP = Rs. 1,02,010
33.33
100
10% Decrease in fixed cost
Old Fixed cost Rs. 34,000
Less: Decreased by 10% Rs. 3,400
New fixed cost Rs. 30,600

Calculation of P/V Ratio

Sales−Variable cost
P/V ratio = X 100
Sales
1, 50,000 – 90,000
P/V ratio = X 100 = 40%
1 , 50,000
P/V ratio = 40%
Calculation of BEP

55
 ¿ Cost
BEP = P
Ratio
V
30,600
100
BEP = 40 = 30,600 X = 76,500
40
100
BEP = Rs. 76,500
Ex. 30. Year Sales (Rs.) Profit/Loss (Rs.)
2020 50,000 5,000 (Loss)
2021 1,00,000 7,500 (Profit)
Calculate:
1) P/V ratio 2) Fixed cost 3) BEP 4) Sales required to earn a profit of Rs. 40,000
5) Margin of Safety at a profit of Rs. 75,000 6) Variable cost of the two years
(Here in 2020 there is a loss of Rs. 5,000. But in 2021 there is a profit of Rs. 7,500
Calculation of change in profit Rs. - 5,000 to 0 should earn Rs. 5,000 and 0 to 7,500 profit earn
Rs. 7,500 hence total profit Rs, 5,000 + 7,500 = Profit Rs. 12,500 the loss is converted in to
profit)
∴ Change in Profit = Rs. 12,500
∴ Change in sales = Rs. 50,000
a) Calculation P/V ratio
Change∈Profit
P/v ratio =
Change ∈sales
12,500
P/v ratio = X 100 = 25% P/v ratio = 25%
50,000
Calculation of Contribution
25
Contribution = Sales X P/V ratio 2020 = 50,000 X = 12,500
100
25
2021 = 1,00,000 X = 25,000
100
c) Calculation of Fixed cost
2020: Fixed cost = Contribution + Loss
2020 = 12,500 + 5,000 = 17,500
2021: Fixed cost = Contribution - Profit
2020 = 25,000 – 7,500 = 17,500
e) Sales required to earn profit of Rs. 40,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
17,500+40,000
= 100
25
100
= 57,500 X = 2,30,000 Required sales = Rs. 2,30,000
25
Margin of Safety at a profit of Rs. 75,000
Profit
Margin of Safety = P
Ratio
V

56
 75,000
100
Margin of Safety = 25 = 75,000 X = 3,00,000
25
100
Margin of Safety = Rs. 3,00,000
Calculation of Variable cost
Variable cost = Sales – Contribution
2019 Variable cost = 50,000 – 12,500 = 37,500
2020 Variable cost = 1,00,000 – 25,000 = 75,000
Ex. 31. A company has fixed cost of Rs. 90,000 with sales at Rs. 3,00,000 and profit of Rs.
60,000.
Calculate:
1) P/V ratio 2) BEP
3) If in the next year the company suffered a loss of Rs. 30,000 Calculate the sales value
4) What is Margin of Safety when profit is Rs. 60,000
Calculation of Contribution
Contribution Equation
Sales – Variable cost = Fixed cost + Profit
∴ Contribution = Sales – Fixed cost – Profit
Contribution = 3,00,000 – 90,000 – 60,000
Contribution = Rs. 1,50,000
a) Calculation P/V ratio
Contribution
P/V ratio = X 100
sales
1 ,50,000
P/V ratio = X 100 = 50%
3 ,00,000
P/V ratio = 50%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
90,000
100
BEP = 50 = 90,000 X = 1,80,000
50
100
BEP = Rs. 1,80,000
Next year suffered a loss of Rs. 30,000
Calculation of Sales
Sales – Variable cost = Fixed cost – Profit
Sales – 1,50,000 = 90,000 – 30,000
Sales = 1,50,000 = 90,000
= 1,50,000 - 60,000
Sales = 90,000
Calculation of Margin of Safety when profit is Rs. 60,000
Profit
Margin of Safety = P
ratio
V
60,000
100
Margin of Safety = 50 = 60,000 X = 1,20,000
50
100
Margin of Safety = Rs. 1,20,000
57
Ex. 32. The sales and profits of X Co., Ltd., during two periods were as follows:
Period Sales (Rs.) Profit/Loss (Rs.)
I Period 1,80,000 30,000
II Period 2,40,000 45,000
You are required to Calculate:
1) P/V ratio 2) BEP 3) The sales required to earn a profit of Rs. 60,000
4) Profit when sales are Rs. 3,50,000 5) Margin of Safety at a profit of Rs. 75,000
6) Variable cost of the two years
a) Calculation P/V ratio
Change in profit = 45,000 – 30,000 = 15,000
Change in sales = 2,40,000 – 1,80,000 = 60,000
Change∈Profit
P/v ratio =
Change ∈sales
15,000
P/v ratio = X 100 = 25% P/v ratio = 25%
60,000
Calculation of Contribution
25
Contribution = Sales X P/V ratio Period I: = 1,80,000 X = 45,000
100
25
Period II: = 2,40,000 X = 60,000
100
Calculation of Fixed cost
Fixed cost = Contribution – Profit
Period I = 45,000 – 30,000 = 15,000
Period II = 60,000 – 45,000 = 15,000
Fixed cost = Rs. 15,000
Calculation BEP
¿ cost
BEP = P
ratio
V
15,000
BEP = 25
100
100
= 15,000 X = 60,000
25
BEP = 60,000
Sales required to earn profit of Rs. 60,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
15,000+60,000
= 25
100
100
= 75,000 X = 3,00,000
25
Required sales = Rs. 3,00,000

58
Calculation of profit when sales Rs. 3,50,000

New Contribution = Sales X P/V Ratio

25
= 3,50,000 X = 87,500
100
Profit = Contribution – Fixed cost
Profit = 87,500 – 15,000 = 72,500
Profit = Rs. 72,500
Calculation of Margin of Safety when the profit is Rs. 75,000
Profit
Margin of Safety = P
Ratio
V
75,000
Margin of Safety = 25
100
100
= 75,000 X = 3,00,000
25
Margin of Safety = Rs. 3,00,000
Calculation of Variable cost
Contribution = Sales – Variable cost
∴ Variable cost = Sales – Contribution
Period I : Variable cost = 1,80,000 – 45,000 = 1,35,000
Period II : Variable cost = 2,40,000 – 60,000 = 1,80,000

Ex. 33. Following details relates to a product of Narendra Ltd.,

Fixed cost Rs. 1,80,000 Units sold 25,000 units Variable cost Rs. 5,00,000
Selling price Rs. 30 per unit
Calculate from the above:
a) BEP in sales and units b) Sales to earn a profit of Rs. 1,00,000
c) Profit/Loss when sales are 15,000 units d) BEP when selling price is reduced to Rs. 20
Calculation of P/V Ratio
Sales−Variable cost
P/V ratio = X 100
Sales
Total Sales = Units sold X Price per unit
= 25,000 X 30
= 7,50,000
7 ,50,000 – 5 , 00,000
P/V ratio = X 100 = 33.33%
7 , 50,000
P/V ratio = 33.33%
Calculation of BEP
¿ Cost
BEP (Sales) = P
Ratio
V
1, 80,000
100
BEP (Sales) = 33.33 = 1,80,000 X = 5,40,054 or 5,40,000
33.33
100
BEP (Sales) = Rs. 5,40,000
59
 BEP sales
BEP (Units) =
Sales price per unit
5 , 40,000
BEP (Units) = = 18,000 Units
30
BEP (Units) = 18,000
Sales required to earn profit of Rs. 1,00,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
1, 80,000+1 , 00,000
100
= 33.33 = 2,80,000 X = 8,40,084
33.33
100
Required sales = Rs. 8,40,000
Calculation of profit when sales are 15,000 units

Sales = Units X sales price per unit

Sales = 15,000 X 30 = 4,50,000

Contribution = Sales X P/V ratio

33.33
Contribution – 4,50,000 X = 1,49,985 or 1,50,000
33.33
Contribution = Rs. 1,50,000

Profit = Contribution – Fixed cost

Profit = 1,50,000 – 1,80,000 = Loss 30,000

Loss = 30,000
When the sales price reduced to Rs. 25 per unit
Contribution per unit = Sales per unit – Variable cost per unit
= 25-20 = 5
¿ cost
BEP (Units) =
Contribution per unit
1, 80,000
= = 36,000 Units BEP (Units) = 36,000 Units
5
Ex. 34. The following results of X Co., Ltd., for the last two months are as follows:
Month Sales (Rs.) Cost (Rs.)
January 1,00,000 77,000
February 1,10,000 83,000
From the following information you are required to:
a) Determine the P/V ratio b) Forecast the expected profit or loss in the sales of Rs. 30,000 & Rs.
1,50,000 c) By using P/V ratio formula determine BEP
Calculation of Profit
Profit = Total sales – Total cost
January : Profit = 1,00,000 – 77,000 = 22,500
February: Profit = 1,10,000 – 83,000 = 27,000
∴ Change in profit = 27,000 – 22,500 = 4,500

60
 Change in sales = 1,10,000 – 1,00,000 = 10,000
a) Calculation P/V ratio
Change∈Profit
P/v ratio =
Change ∈sales
4,500
P/v ratio = X 100 = 45% P/v ratio = 45%
10,000
Expected profit or loss in the sales of Rs. 30,000 & Rs. 1,50,000
Change∈Cost
% of variable = X 100
Change∈sales
83,000 – 77,500
% of variable = X 100 = 55%
1, 10,000−1, 00,000
Variable – 55% on sales
55
January = 1,00,000 X = Rs. 55,000
100
55
February = 1,10,000 X = Rs. 60,500
100
Calculation of Contribution
Contribution – Sales – Variable cost
January = 1,00,000 – 55,000 = Rs. 45,000
February = 1,10,000 – 60,500 = Rs. 49,500
Calculation of Fixed cost
Fixed cost = Contribution – Profit
January = 45,000 – 22,500 = Rs. 22,500
February = 49,500 – 27,000 = Rs. 22,500
Calculation of BEP
¿ Cost
BEP (Sales) = P
Ratio
V
22,500
100
BEP (Sales) = 45 = 22,500 X = 50,000 BEP (Sales) = Rs. 50,000
45
100
Forecast the expected profit or loss
If sales is Rs. 40,000
Contribution = Sales X P/V ratio
45
Contribution = 40,000 X = 18,000
100
Contribution = Rs. 18,000
Profit = Contribution – Fixed cost
Profit = 18,000 – 22,500 = Loss 4,500
Loss = Rs. 4,500
If sales is Rs. 1,50,000
Contribution = Sales X P/V ratio
45
Contribution = 1,50,000 X = 67,500
100
Contribution = Rs. 67,500
Profit = Contribution – Fixed cost
Profit = 67,500 – 22,500 = 45,000

61
 Profit = Rs. 45,000
Ex. 35. Three firms A, B and C manufacture the same product. The selling price is Rs. 8 per unit
of the product (equal for all firms), The variable costs per unit for the firms A, B and C are Rs. 6,
Rs. 4 and Rs. 3 and the fixed costs are Rs. 80,000, Rs. 2,00,000 and Rs. 3,30,000 respectively
i) Determine the BEP for all the firms in units
ii) How much profits are earned by the firms if each of them sells 80,000 units?
iii) What will be the increase in percentage of profit if sales increased by 20%?
Calculation of P/V ratio, BEP and Profit
Formula Firm ‘A’ Firm ‘B’ Firm ‘C’

P/V ratio

Sales−Variable cost 8−6 8−4 8−3

= X = X 100 = = X 100 = 50% = X 100 = 62.5%
Sales 8 8 8
100 25%

¿ Cost 80,000 2 ,00,000 3 ,30,000

BEP = P = 25 = 50 = 62.5
Ratio
V 100 100 100

100 50 62.5
= 80,000 X = 2,00,000 X = 3,30,000 X
25 100 100

= 3,20,000 = 4,00,000 = 5,28,000

Profit earned by firms if units sold = 80,000

Profit Sales= 80,000 X 8 Sales= 80,000 X 8 Sales= 80,000 X 8

= Sales – V.C – F.C. = 6,40,000 = 6,40,000 = 6,40,000

Sales = Units X rate per V.C. = 80,000 X 6 V.C. = 80,000 X 4 V.C. = 80,000 X 3
unit
= 4,80,000 = 3,20,000 = 2,40,000
Sales = Units X V.C. per
unit Profit Profit Profit

= 6,40,000 – 4,80,000 = 6,40,000 – = 6,40,000 –

– 80,000 3,20,000 – 2,00,000 2,40,000 – 3,30,000

Profit = 80,000 Profit = 1,20,000 Profit = 70,000

P/V ratio

Sales−Variable cost 6 , 40,000 – 4 , 80,000 = =

= X =
Sales 6 , 40,000 6 , 40,000 – 3 , 20,000 6 , 40,000 – 2 , 40,000
100 X 100 = 25% 6 , 40,000 6 , 40,000
100 100

= 50% = 62.50%

¿ Cost 80,000 2 ,00,000 3 ,30,000

BEP = P = 25 = 50 = 62.5
Ratio
V 100 100 100

62
 100 100 100
= 80,000 X = 2,00,000 X = 3,30,000 X
25 50 62.5
= 3,20,000 = 4,00,000 = 5,28,000

If % of sales is increased by 20% on BEP sales

Calculation of new sales Old sales = 3,20,000 Old sales = 4,00,000 Old sales = 5,28,000

Old sales + 20% Add: 20% = 64,000 Add: 20% = 80,000 Add: 20% = 1,05,000

New sales = New sales = 4,80,000 New sales = 6,33,600

3,84,000

Calculation of contribution Contribution Contribution Contribution

C = Sales X P/V ratio 25 50 62.50

= 3,84,000 X = 4,80,000 X = 6,33,000 X
100 100 100

= 96,000 = 2,40,000 = 3,96,000

Profit Profit Profit Profit

= Contribution – Fixed cost = 96,000 – 80,000 = 2,40,000 – = 3,96,000 – 3,30,000

2,00,000
= 16,000 = 66,000
= 40,000

Ex. 36. Selling price of a product is Rs. 10 per unit. The material cost (direct) is Rs. 3 and direct
labour cost is Rs. 2 and Variable overhead costs is Rs. 1 per unit. The total fixed cost is Rs.
80,000. You are required to calculate:
a) P/V ratio b) BEP c) Profit/loss when sales are Rs. 2,50,000
d) Sales to earn a profit of Rs. 1,20,000 e) Margin of Safety when sales are Rs. 2,50,000
Calculation of Marginal cost
Direct Material Rs. = 3
Direct Labour Rs. = 2
Variable overhead Rs. = 1
Total Marginal cost Rs. = 6
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
10 – 6
P/V ratio = X 100 = 40% P/V ratio = 40%
10
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
80,000
100
BEP = 40 = 80,000 X = 2,00,000 BEP = Rs. 2,00,000
40
100
Calculation of profit when sales are Rs. 2,50,000

63
 Profit = Contribution – Fixed cost
Contribution = Sales X P/V ratio
40
Contribution = 2,50,000 X
100
Contribution = Rs. 1,00,000
Profit = 1,00,000 – 80,000 = 20,000
Profit = Rs. 20,000
Sales required to earn profit of Rs. 1,20,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
80,000+1 ,20,000
100
= 40 = 2,00,000 X = 5,00,000
40
100
Required sales = Rs. 5,00,000
Calculation of Margin of Safety when sales are Rs. 2,50,000
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 2,50,000 – 2,00,000
Margin of Safety = Rs. 50,000
Ex. 37. Calculate BEP in value and units, Margin of Safety and Profit or loss from the following:
Price per unit Rs. 100
Budgeted sales for the year 2000 -2001 Rs. 10,00,000
Direct materials 40% of sales price
Direct labour 40% of sales price
Variable overheads 15% of sales price
Total fixed cost Rs. 1,50,000
Calculation of Marginal cost
40
Direct Material 40% of sales = 10,00,000 X = Rs. 4,00,000
100
20
Direct Labour 20% of sales = 10,00,000 X = Rs. 2,00,000
100
15
Variable overhead 15% of sales = 10,00,000 X = Rs. 1,50,000
100
Total Marginal cost = Rs. 7,50,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
10 ,00,000 – 7 , 50,000
P/V ratio = X 100 = 25%
10 , 00,000
P/V ratio = 25%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V

64
 1, 50,000
100
BEP = 25 = 1,50,000 X = 6,00,000
25
100
BEP = Rs. 6,00,000
BEP sales
BEP (Units) =
Sales per unit
6 , 00,000
BEP = = 60,000
100
BEP (Units) = 60,000 Units
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 10,00,000 – 6,00,000
Margin of Safety = Rs. 40,000
Calculation of profit
Profit = Contribution – Fixed cost
Profit = 2,50,000 – 1,50,000
Profit = Rs. 1,00,000
Ex. 38. You are required to calculate:
a) Margin of Safety b) Sales c) Variable cost from the following figures.
Fixed cost Rs. 12,000
Profit Rs. 1,000
BEP Rs. 60,000
d) What should be the profit if sales are expected to reach Rs. 80,000 taking the figures above?
BEP level contribution is equal to fixed cost
∴ Contribution = 12,000
Calculation of P/V ratio
Contribution
P/V ratio = X 100
Sales
12,000
P/V ratio = X 100 = 20% P/V ratio = 20%
60,000
Calculation of % of variable cost
% of Variable cost = 100 20 = 80% on sales
80
∴ Variable cost = 60,000 X = Rs. 48,000
100
Contribution = Sales – Variable cost
Contribution = 60,000 – 48,000
Contribution = 12,000
Calculation of profit when sales are Rs. 80,000
Contribution = Sales X P/V ratio
20
Contribution = 80,000 X = Rs. 16,000
100
Profit = Contribution – Fixed cost
Profit = 16,000 – 12,000
Profit = 4,000
Ex. 39. Assuming that the cost structure and selling prices remain the same in period I & II
Find out
1) P/V ratio 2) BEP 3) Profit when sales are Rs. 1,00,000

65
 4) Sales required to earn a profit of Rs. 20,000
Period Sales (Rs.) Profit/Loss (Rs.)
I Period 1,20,000 9,000
II Period 1,40,000 13,000
a) Calculation P/V ratio
Change in profit = 13,000 – 9,000 = 4,000
Change in sales = 1,40,000 – 1,20,000 = 20,000
Change∈Profit
P/v ratio =
Change ∈sales
4,000
P/v ratio = X 100 = 20% P/v ratio = 25%
20,000
Calculation of Contribution
20
Contribution = Sales X P/V ratio Period I: = 1,20,000 X = 24,000
100
20
Period II: = 1,40,000 X = 28,000
100
Calculation of Fixed cost
Fixed cost = Contribution – Profit
Period I = 24,000 – 9,000 = 15,000 Period II = 28,000 – 13,000 = 15,000
Fixed cost = Rs. 15,000
Calculation BEP
¿ cost
BEP = P
ratio
V
15,000
100
BEP = 20 = 15,000 X = 75,000
20
100
BEP = 75,000
Calculation of profit when sales Rs. 1,00,000
New Contribution = Sales X P/V Ratio
20
= 1,00,000 X = 20,000
100
Profit = Contribution – Fixed cost
Profit = 20,000 – 15,000 = 5,000
Profit = 5,000
Sales required to earn profit of Rs. 20,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
15,000+20,000
100
= 20 = 35,000 X = 1,75,000
20
100
Required sales = Rs. 1,75,000
Ex. 40. Given the following information:
Units sold 5,00,000
Fixed cost Rs. 7,50,000
66
 Variable cost per unit Rs. 2
Selling price per unit Rs. 5
You are required to determine:
1) BEP 2) The sales needed for a profit of Rs. 6,00,000
3) The profit of 4,00,000 units are sold at Rs. 6 per unit
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
5– 2
P/V ratio = X 100 = 60%
5
P/V ratio = 60%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
7 ,50,000
100
BEP = 60 = 7,50,000 X = 12,50,000
60
100
BEP = Rs. 6,00,000
Sales required to earn profit of Rs. 6,00,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
7 ,50,000+ 6 , 00,000
100
= 60 = 13,50,000 X = 22,50,000
60
100
Required sales = Rs. 22,50,000
Calculation of profit when sales are 4,00,000 units
Sales = Number of units X Sales per unit
= 4,00,000 X 6 = 24,00,000
Less: Variable cost 4,00,000 X 2 = 8,00,000
Contribution = 16,00,000
Less: Fixed cost 7,50,000
Profit = 8,50,000
Ex. 41. You are given the Income statement of a company:
Rs.
Net sales 5,00,000
Less: Expenses
Variable 3,50,000
Fixed 2,50,000 6,00,000
Net loss 1,00,000
Compute:
a) P/V ratio b) If fixed expenses are increased by Rs. 1,00,000 calculate BEP
c) What amount of sales will yield a net profit of Rs. 50,000 with the proposed increase in
fixed expenses?
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
67
 5 ,00,000 – 3 ,50,000
P/V ratio = X 100 = 30% P/V ratio = 30%
5 , 00,000

Calculation of BEP
¿ Cost
BEP = P
Ratio
V
2 ,50,000
100
BEP = 30 = 2,50,000 X = 8,33,333
30
100
BEP = Rs. 8,33,333
If fixed cost increased by Rs. 1,00,000
Old fixed cost Rs. 2,50,000
Add: Increased Rs. 1,00,000
New Fixed cost Rs. 3,50,000
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
3 ,50,000
100
BEP = 30 = 3,50,000 X = 11,66,666.66 BEP = Rs. 11,66,667
30
100
Sales required to earn profit of Rs. 50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
3 ,50,000+50,000
100
= 30 = 4,00,000 X = 13,33,333.33
30
100
Required sales = Rs. 13,33,333
Ex. 42. From the following particulars calculate:
i) P/V ratio ii) BEP iii) Sales required to earn a profit of Rs. 1,50,000
iv) Profit when sales are Rs. 10,00,000 v) Margin of Safety available to it if company
is
earning a profit of Rs. 2,00,000
Calculation of Variable cost
Variable cost = Sales – Fixed cost – Profit
Variable cost = 5,00,000 – 1,50,000 – 1,00,000
Variable cost = Rs. 2,50,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
5 ,00,000 – 2 ,50,000
P/V ratio = X 100 = 50%
5 , 00,000
P/V ratio = 50%
Calculation of BEP
68
 ¿ Cost
BEP = P
Ratio
V
1, 50,000
BEP = 50
100
100
= 1,50,000 X = 3,00,000
50
BEP = Rs. 3,00,000
Sales required to earn profit of Rs. 1,50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
1, 50,000+1 , 50,000
100
= 50 = 3,00,000 X = 6,00,000
50
100
Required sales = Rs. 6,00,000

Calculation of profit when sales Rs. 10,00,000

New Contribution = Sales X P/V Ratio
50
= 10,00,000 X = 5,00,000
100
Profit = Contribution – Fixed cost
Profit = 5,00,000 – 1,50,000 = 3,50,000
Profit = 3,50,000
Calculation of Margin of Safety
Profit
Margin of Safety = P
Ratio
V
2 ,00,000
100
Margin of Safety = 50 = 2,00,000 X = 4,00,000
50
100
Margin of Safety = Rs. 4,00,000
Ex. 43. Find out from the following i) P/V ratio ii) BEP iii) Profit from the sales of Rs. 1,30,000 and
v) Sales to be effected to earn a net profit of Rs. 10,000
The position of the company for the year 2020:
Sales 1,20,000
Variable overhead 96,000
Gross profit 24,000
Fixed overheads 16,000
Net profit 8,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales

69
 1, 20,000 – 96,000
P/V ratio = X 100 = 20%
1 , 20,000
P/V ratio = 20%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
16,000
100
BEP = 20 = 16,000 X = 80,000
20
100
BEP = Rs. 80,000
Calculation of profit
Profit = Contribution – Fixed cost
Profit = 1,20,000 – 96,000
Profit = Rs. 8,000
Sales required to earn profit of Rs. 1,30,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
16,000+1 ,30,000
= 20
100
100
= 1,46,000 X = 7,30,000
20
Required sales = Rs. 7,30,000
Ex. 44. Following information relates to Kaveri Ltd.,
Rs.
Sales (10,000 units) 4,00,000
Fixed cost 1,20,000
Variable cost 2,40,000
Find out the P/V ratio, BEP and calculate the sales to earn a profit of Rs. 30,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
4 ,00,000 – 2, 40,000
P/V ratio = X 100 = 40%
4 , 00,000
P/V ratio = 40%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
1, 20,000
100
BEP = 40 = 1,20,000 X = 3,00,000
40
100
BEP = Rs. 3,00,000

70
Sales required to earn profit of Rs. 30,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
1, 20,000+30,000
100
= 40 = 1,50,000 X = 3,75,000
40
100
Required sales = Rs. 3,75,000
Ex. 45. Bharat Plastics make plastic Jars. Its production is 3,000 Jars per year. It has annual fixed
cost of Rs. 60,000. One Jar is sold at Rs. 90. The raw material needed is worth Rs. 20 per Jar.
Labour and other variable overheads are Rs. 20. The salesman is offered Rs. 5 per Jar as the
commission.
You are required to calculate and comment on:
a) BEP b) Sales of Jars to make a profit of Rs. 39,000 c) effect of reduction on selling price to Rs.
80 in maintaining profit of Rs. 27,500
Calculation of Marginal cost
Direct Material Rs. = 20
Direct Labour Rs. = 20
Commission Rs. = 5
Total Marginal cost Rs. = 45
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
90 – 45
P/V ratio = X 100 = 50%
90
P/V ratio = 50%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
60,000
100
BEP = 50 = 60,000 X = 1,20,000
50
100
BEP = Rs. 1,20,000
Sales required to earn profit of Rs. 39,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
60,000+39,000
100
= 50 = 99,000 X = 1,98,000
50
100
Required sales = Rs. 1,98,000
If sales price per Jar is Rs. 80
Calculation of P/V ratio

71
 Sales−Variable cost
P/V ratio = X 100
Sales
80 – 45
P/V ratio = X 100 = 43.75%
80
P/V ratio = 43.75%
Sales required to earn a profit of Rs. 27,500
¿ cost + Desired Profit
Required sales = P
Ratio
V
60,000+27,500
100
= 43.75 = 87,500 X = 2,00,000
43.75
100
Required sales = Rs. 2,00,000
Ex. 46. Lucky Buckets Ltd., sold 14,000 and 18,000 Buckets at Rs. 50 per Bucket in two
consecutive years. The company incurred a loss of Rs. 10,000 in the first year and earned a profit
of Rs. 10,000 in the second year
Find out:
1) The amount of fixed cost 2) BEP (units) 3) Sales required to earn a profit of Rs. 35,000
Calculation of change in profit and change in sales
Sales price per Bucket Rs. 50
I Year Loss Rs. 10,000
II Year Profit Rs. 10,000
Sales I Year 14,000 X 50 = 7,00,000
II Year 18,000 X 50 = 9,00,000
Calculation of P/V Ratio
Change∈Profit
P/V Ratio = X 100
Change∈Sales
(Here in 2017 there is a loss of Rs. 10,000. But in 2018 there is a profit of Rs. 10,000
Calculation of change in profit Rs. - 10,000 to 0 should earn Rs. 10,000 and 0 to 10,000 profit
earn Rs. 10,000 hence total profit Rs, 10,000 + 10,000 = Profit Rs. 20,000 the loss is converted in
to profit)
∴ Change in Profit = Rs. 20,000
∴ Change in sales = Rs. 2,00,000
Change∈Profit 20,000
P/V Ratio = X 100 P/V Ratio = X 100 = 10%
Change∈Sales 2 ,00,000
Calculation of contribution
Contribution = Sales X P/V Ratio
10
I Year = 7,00,000 X = Rs. 70,000
100
10
II Year = 9,00,000 X = Rs. 90,000
100

Calculation of Fixed cost (Fixed cost for both years is same)

72
 Fixed cost = Contribution + Loss
I Year = 70,000 + 10,000 = 80,000 Fixed cost = Rs. 80,000
II Year = Contribution – Profit
= 80,000 – 10,000 = Rs. 80,000 Fixed cost = Rs. 80,000
Sales required to earn a profit of Rs. 27,500
¿ cost + Desired Profit
Required sales = P
Ratio
V
80,000+35,000
100
= 10 = 1,15,000 X = 11,50,000
10
100
Required sales = Rs. 11,50,000
Ex. 47. From the following information relating to Quick Standard Ltd.,.
Find out:
i) Contribution ii) BEP iii) Margin of Safety iv) Profit
Rs.
Total fixed cost 4,500
Total variable cost 7,500
Total sales 15,000
Units sold 5,000 units
Also calculate the volume of sales to earn a profit of Rs. 6,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
15,000 – 7,500
P/V ratio = X 100 = 50%
7,500
P/V ratio = 50%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
4,500
100
BEP = 50 = 4,500 X = 9,000
50
100
BEP = Rs. 9,000
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
Margin of Safety = 15,000 – 9,000
Margin of Safety = Rs. 6,000
Calculation of Profit
Profit = Contribution – Fixed cost
Profit = sales – Variable cost – Fixed cost
Profit = 15,000 – 7,500 – 4,500 = 3,000
Profit = 3,000
Ex. 48. The sales turn over and profit during two years were as follows:
Year Sales (Rs.) Profit/Loss (Rs.)
2020 1,50,000 20,000

73
 2021 ,,1,70,000 25,000
Calculate: 1) P/V ratio 2) BEP 3) Sales required to earn a profit of Rs. 40,000
4) Profit when sales are Rs. 2,50,000 5) Margin of Safety at a profit of Rs. 50,000
6) Variable cost of the two years
a) Calculation P/V ratio
Change in profit = 25,000 – 20,000 = 5,000
Change in sales = 1,70,000 – 1,50,000 = 20,000

Change∈Profit
P/v ratio =
Change ∈sales
5,000
P/v ratio = X 100 = 25% P/v ratio = 25%
20,000
Calculation of Contribution
25
Contribution = Sales X P/V ratio 2020 Year = 1,50,000 X = 37,500
100
25
2021 Year = 1,70,000 X = 42,500
100
Calculation of Fixed cost
Fixed cost = Contribution – Profit
2020 Year = 37,500 – 20,000 = 17,500 2021 Year = 42,500 – 25,000 = 17,500
Fixed cost = Rs. 17,500
Calculation BEP
¿ cost
BEP = P
ratio
V
17,500
100
BEP = 25 = 17,500 X = 70,000 BEP = Rs. 70,000
25
100
Sales required to earn profit of Rs. 40,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
17,500+40,000
100
= 25 = 57,500 X = 2,30,000 Required sales = Rs. 2,30,000
25
100
Calculation of profit when sales Rs. 2,50,000

New Contribution = Sales X P/V Ratio

25
= 2,50,000 X = 62,500
100
Profit = Contribution – Fixed cost
Profit = 62,500 – 17,500 = 45,000
Profit = 45,000
Ex. 49. The following information relates to Poornima Ltd.,
Rs.
Sales (10,000 units) 2,00,000
Fixed cost 1,20,000
74
 Variable cost 60,000
Find out the P/V ratio and BEP. Calculate the new P/V ratio and BEP by considering the following
changes:
a) 20% increase in sales price accompanied by an increase of fixed cost by Rs. 20,000
b) 20% increase in sales price accompanied by 10% decrease in variable cost and 10% increase
in fixed cost

Calculation of P/V ratio

Sales−Variable cost
P/V ratio = X 100
Sales
2 ,00,000 – 1, 20,000
P/V ratio = X 100 = 40% P/V ratio = 40%
2 , 00,000
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
60,000
100
BEP = 40 = 60,000 X = 1,50,000
40
100
BEP = Rs. 1,50,000
If the sales price increased by 20% and Fixed cost Increased by Rs. 20,000
Old Sales price Rs. 2,00,000 Old Fixed cost Rs. 60,000
Add: Increased by 20% Rs. 40,000 Add: Increased by Rs. 20,000
New sales price Rs. 2,40,000 New fixed cost Rs. 80,000

Calculation of P/V ratio

Sales−Variable cost
P/V ratio = X 100
Sales
2 , 40,000 – 1 ,20,000
P/V ratio = X 100 = 50%
2 , 40,000
P/V ratio = 50%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
80,000
100
BEP = 50 = 80,000 X = 1,60,000 BEP = Rs. 1,60,000
50
100
If increase in sales price by 20% and Variable cost decrease by 10%
Old Sales price Rs. 2,00,000 Old Variable cost Rs. 1,20,000
Add: Increased by 20% Rs. 40,000 Less: Decreased by 10% Rs. 12,000
New sales price Rs. 2,40,000 New Variable cost Rs. 1,08,000
Old Fixed cost Rs. 60,000
Add: Increased by 10% Rs. 6,000
New fixed cost Rs. 66,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
2 , 40,000 – 1 , 08,000
P/V ratio = X 100 = 55% P/V ratio = 55%
2 , 40,000

75
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
66,000
100
BEP = 55 = 66,000 X = 1,20,000 BEP = Rs. 1,20,000
55
100
Ex. 50. The P/V ratio of AB Ltd., is 25% and the Margin of Safety is 20%. Workout the Net profit
and the BEP at the sales volume of Rs. 50,000
Calculation of BEP sales
Actual Sales Rs. 50,000
Less: Margin of Safety 20% of sales Rs. 10,000
BEP sales Rs. 40,000
Margin of Safety = Actual Sales – BEP Sales
BEP Sales = 50,000 – 10,000
BEP Sales = Rs. 40,000
Calculation of % of profit
% of profit = % of Margin of Safety X P/V ratio
20 25
= 20% X 25% = X = 5% on sales
100 100
5
Profit = 50,000 X = 2,500
100
Profit = Rs. 2,500
Ex. 51. The following figures are obtained from the accounts of Co., Ltd.,
Particulars Period I Period II
Number of Units sold 10,000 30,000
Selling price per unit (Rs.) 50 50
Profit or loss (Rs.) 1,00,000 (loss) 1,00,000 (Profit)
Calculate: i) Amount of fixed cost ii) BEP (Units)
iii) The number units to be sold to earn a profit of Rs. 4,00,000
Calculation of sales
Sales = Number of units X selling price per unit
Period I Sales = 10,000 X 50 = 5,00,000
Period II sales = 30,000 X 50 = 15,00,000
∴ Change in sales = Rs. 10,00,000
Calculation of change in profit
(Here in Period I there is a loss of Rs. 1,00,000. But in Period II there is a profit of Rs. 1,00,000
Calculation of change in profit Rs. – 1,00,000 to 0 should earn Rs. 1,00,000 and 0 to 1,00,000
profit earn Rs. 1,00,000 hence total profit Rs, 1,00,000 + 1,00,000 = Profit Rs. 2,00,000 the loss
is converted in to profit)
Change∈Profit
P/V Ratio = X 100
Change∈Sales
2 ,00,000
P/V Ratio = X 100 = 20%
10 ,00,000
Calculation of contribution
Contribution = Sales X P/V Ratio

76
 20
I Period = 5,00,000 X = Rs. 1,00,000
100
20
II Period = 15,00,000 X = Rs. 3,00,000
100
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution + Loss
I Period = 1,00,000 + 1,00,000 = 2,00,000 Fixed cost = Rs. 2,00,000
II Period = Contribution – Profit
= 3,00,000 – 1,00,000 = Rs. 2,00,000 Fixed cost = Rs. 2,00,000
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
2 ,00,000
100
BEP (sales) = 20 = 2,00,000 X = 10,00,000
20
100
BEP (sales) = Rs. 10,00,000
BEP sales
BEP (Units) =
Sales per unit
10 ,00,000
BEP (sales) = = 20,000 Units
50
BEP (sales) = 20,000
Sales required to earn a profit of Rs. 4,00,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
2 ,00,000+ 4 , 00,000
100
= 25 = 6,00,000 X = 24,00,000 Required sales = Rs.
25
100
24,00,000
Required sales
Required sales per unit =
Sales per unit
24 , 00,000
= = 48,000 Required units = 48,000 units
50
Ex. 52. Company budgeted a production of 5,00,000 units at a variable cost of Rs. 20 each. The
fixed costs are Rs. 20,00,000. The selling price is fixed to yield 25% profit on cost. You are
required to calculate i) P/V Ratio ii) BEP
Calculation of sales price
If the cost is Rs. 100 profit is 25% i.e Rs. 25. If the cost price is Rs. 20 how much of profit
Sales price = Cost + 25% on cost
25
= 20 + 20 X = 25 + 5 = Rs. 25
100
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales

77
 25 – 20
P/V ratio = X 100 = 20% P/V ratio = 20%
25
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
20 , 00,000
100
BEP = 20 = 20,00,000 X = 1,00,00,000 BEP = Rs. 1,00,00,000
20
100
Ex. 53. The P/V ratio of Anand Ltd., is 40% and Margin of safety is 30% calculate:
i) BEP ii) Profit if sales are Rs. 2,40,000 iii) Fixed cost
Calculation of BEP
Margin of Safety = Actual sales – BEP sales
Margin of Safety = 30% on sales Rs. 2,40,000
30
Margin of Safety = 2,40,000 X = 72,000
100
72,000 = 2,40,000 – BEP sales
∴ BEP sales = 2,40,000 – 72,000
BEP sales = Rs. 1,68,000
Calculation of % of profit
% of profit = % of Margin of Safety X P/V ratio
30 40
= 30% X 40% = X = 12% on sales
100 100
12
Profit = 2,40,000 X = 28,8000
100
Profit = Rs. 28,800
Ex. 54. The following information related to the product of a company:
Selling price per unit Rs. 10
Variable manufacturing cost per unit Rs. 3
Fixed costs are:
Manufacturing Rs. 1,75,000 per year
Administrative Rs. 15,000 per year
Selling Rs. 10,000 per year
The company pays to its agents a commission of 30% on sales
Calculate:
1) BEP in units and amount 2) P/V ratio 3) Sales to earn a profit of Rs. 30,000
4) If the company is earning a profit Rs. 30,000 Margin of safety available to it

Calculation of total fixed cost

Manufacturing Rs. 1,75,000 per year
Administrative Rs. 15,000 per year
Selling Rs. 10,000 per year
Total fixed cost Rs. 2,00,000
Calculation of variable cost
Variable manufacturing cost per unit Rs. 3

78
 Add: agents a commission of 30% on sales Rs. 10 Rs. 3
Total variable cost Rs. 6
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
10 – 6
P/V ratio = X 100 = 40% P/V ratio = 40%
10
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
2 ,00,000
100
BEP = 40 = 2,00,000 X = 5,00,000 BEP = Rs. 5,00,000
40
100
Sales required to earn a profit of Rs. 30,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
2 ,00,000+ 30,000
100
= 40 = 2,30,000 X = 5,75,000
40
100
Required sales = Rs. 5,75,000
Calculation of Margin of Safety
Profit
Margin of Safety = P
Ratio
V
30,000
100
Margin of Safety = 40 = 30,000 X = 75,000
40
100
Margin of Safety = Rs. 75,000
Ex. 55. From the information given below calculate:
a) P/V ratio b) Sales required to earn a profit of Rs. 400
Sales 200 units at Rs. 10 per unit
Fixed overheads Rs. 400
Variable cost Rs. 6 per unit
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
10 – 6
P/V ratio = X 100 = 40% P/V ratio = 40%
10
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
400
100
BEP = 40 = 400 X = 1,000 BEP = Rs. 1,000
40
100
79
Sales required to earn a profit of Rs. 400
¿ cost + Desired Profit
Required sales = P
Ratio
V
400+ 400
100
= 40 = 800 X = 2,000 Required sales = Rs. 2,000
40
100
Ex. 56. A company produces and sales 4 types of products under 4 barnd names A, B, C and D
respectively. The sales mixture of each product is as follows:
1 2 2 1
A = 33 % B = 41 % C = 16 % D=8 %
3 3 3 3
The budgeted sales representing 100% capacity is Rs. 50,000 for the year
Variable costs are:
A 20% of selling price, B 40% of selling price, C 50% of selling price and D 70% of selling price
Fixed costs are Rs. 28,125 per year
Calculate:
a) BEP sales and units 2) Profit
Calculation of sales value and variable cost of each product
Sales value = Total sales X mixture of each product
Variable cost = Sales X % on selling price
Product ‘A’
100
Sales value = 90,000 X = 30,000
3
20
Variable = 30,000 X = Rs. 6,000
100
Product ‘B’
125
Sales value = 90,000 X = 37,500
3
40
Variable = 37,500 X = Rs. 15,000
100
Product ‘C’
50
Sales value = 90,000 X = 15,000
3
50
Variable = 15,000 X = Rs. 7,500
100
Product ‘D’
25
Sales value = 90,000 X = 7,500
3
70
Variable = 5,500 X = Rs. 5,250
100
Total variable cost = Rs. 33,750
Calculation of P/V ratio

80
 Sales−Variable cost
P/V ratio = X 100
Sales
90,000 – 33,750
P/V ratio = X 100 = 62.5%
90,000
P/V ratio = 40%
Calculation of BEP
¿ Cost
BEP = P
Ratio
V
28,125
100
BEP = 62.5 = 28,125 X = 45,000
62.5
100
BEP = Rs. 45,000
Profit = Sales – Variable cost – Fixed cost
Profit = 90,000 – 33,750 – 28,125
Profit = Rs. 28,125

Ex. 57. The following information relates to Shivayogi Ltd.,:

Sales 10,000 units at Rs. 20 per unit
Variable cost Rs. 10 per unit
Fixed cost Rs. 80,000
Find out BEP in sales and units and also prefot earned
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
20 – 10
P/V ratio = X 100 = 50%
20
P/V ratio = 50%
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
80,000
100
BEP (sales) = 50 = 80,000 X = 1,60,000
50
100
BEP (sales) = Rs. 1,60,000
BEP sales
BEP (Units) =
Sales per unit
1, 60,000
BEP (Units) = = 8,000 Units
20
BEP (Units) = 8,000 units
Sales required to earn a profit of Rs. 60,000
¿ cost + Desired Profit
Required sales = P
Ratio
V

81
 80,000+60,000
100
= 50 = 1,40,000 X = 2,80,000
50
100
Required sales = Rs. 2,80,000
Required sales
Required sales per unit =
Sales per unit
2 ,80,000
= = 14,000 units
20
Required sales per unit = 14,000 Units
Ex. 58. The cost figures for 1985 are given
Variable cost per unit Rs. 5
Fixed charges Rs. 2,00,000
Sales Rs. 5,00,000
In view of the competition to maintain the sales, it is proposed to reduce the selling price from
present Rs. 10 to Rs. 9 per unit in 1986
Find out the number of units to be sold to maintain the profit at the same level 1986. Tabulate the
results of 1985 and 1986 indicating:
1) Number of units produced 2) Selling price realized 3) Required sales 4) The profit earned
Calculation of new sales and sales per unit
Old sales Rs. 5,00,000
Sales per unit Rs. 10
sales 5 ,00,000
∴ Number of units = = = = 50,000 units
Sales per unit 10
Calculation of Total variable cost
Total variable cost = Number of units X Variable cost per unit
= 50,000 X 5 = Rs. 2,50,000

Calculation of Contribution
Per units Total
Contribution = Sales – Variable cost = 10 – 5 = 5 = 5,00,000 – 2,50,000 = 2,50,000
Calculation of Profit
Profit = Contribution – Fixed cost = 2,50,000 – 2,00,000 = 50,000
In 1986 to Calculations number of units produced to earn same amount of profit, if the
sales price is reduced to Rs. 9
Calculation of Contribution
Contribution = Sales – Variable cost
Contribution = 9 – 5 = 4
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
9 –5
P/V ratio = X 100 = 44.44% P/V ratio = 44.44%
5
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
2 ,00,000
100
BEP (sales) = 44.44 = 2,00,000 X = 4,50,045
44.44
100
BEP (sales) = Rs. 4,50,000

82
 BEP sales
BEP (Units) =
Sales per unit
4 ,50,000
BEP (Units) = = 50,000 Units BEP (Units) = 50,000 units
9
Sales required to earn a profit of Rs. 50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
2 ,00,000+50,000
100
= 44.44 = 2,50,000 X = 5,62,556
44.44
100
Required sales = Rs. 5,62,556
Required sales
Required sales per unit =
Sales per unit
5 ,62,556
= = 62,500 units Required sales per unit = 62,500 Units
9
Calculation of profit
Sales Rs. 5,62,556
Less: Variable cost 62,500 X 5 Rs. 3,12,500
Contribution Rs. 2,50,056
Less Fixed cost Rs. 2,00,000
Profit Rs. 56,056
Ex. 59. Videcon appliances Ltd., manufactures and sold 1,000 washing machines last year at a
price of Rs. 5,000 each. Cost structure per machine is as follows:
Rs.
Direct material 1,000
Direct wages 500
Variable overheads 250
Marginal cost 1,750
Fixed cost 2,000
Total cost 3,750
Profit 1,250
Selling price 5,000
Due to heavy competition price has to be reduced to Rs. 3,250 for the coming year. Assuming no
change in costs, state the number of manufactures that would have to be sold at the new price to
ensure the same amount of total profit as the last year.

Calculation of profit
Profit during the year = Profit per Machine X No of Machines sold
= 1,250 X 1,000
Profit during the year = Rs. 12,50,000
Calculation of total fixed cost
Total fixed cost = Fixed cost per Machine X Number of Machines sold
Total fixed cost = 2,000 X 1,000
= Rs. 20,00,000
Calculation of contribution at reduced selling price
Old selling price per machine Rs. 5,000
New selling price Rs. 4,250
Contribution = sales – Variable cost
Contribution = 4,250 – 1,750
83
 Contribution = Rs. 2,500
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
4,250 – 1,750
P/V ratio = X 100 = 58.82%
4,250
P/V ratio = 58.82%
Sales required to earn a profit of Rs. 50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
20 , 00,000+12 ,50,000
= 58.82
100
100
= 32,50,000 X = 55,25,331.51
58.82
Required sales = Rs. 55,25,332
Required sales
Required sales per Machine =
Sales per unit
55 ,25,332
= = 1,300 Machines
4,250
Required sales per Machine = 1,300 Machines
Ex. 60. Anup Radio manufactures and sold 10,000 Radios last year at a price of Rs. 500 each.
Cost structure per machine is as follows:
Rs.
Direct material 100
Direct wages 50
Variable overheads 20
Marginal cost 175
Fixed cost 200
Total cost 375
Profit 125
Selling price 500
Due to heavy competition price has to be reduced to Rs. 425 for the coming year. Assuming no
change in costs, state the number of manufactures that would have to be sold at the new price to
ensure the same amount of total profit as the last year.
Calculation of profit
Profit during the year = Profit per Radio X No of Radios sold
= 125 X 10,000
Profit during the year = Rs. 12,50,000
Calculation of total fixed cost
Total fixed cost = Fixed cost per Radio X Number of Radios sold
Total fixed cost = 200 X 10,000
= Rs. 20,00,000
Calculation of contribution at reduced selling price
Old selling price per Radio Rs. 500
New selling price Rs. 425
Contribution = sales – Variable cost

84
 Contribution = 425 – 175
Contribution = Rs. 250
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
425 – 175
P/V ratio = X 100 = 58.82%
425
P/V ratio = 58.82%
Sales required to earn a profit of Rs. 50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
20 , 00,000+12 ,50,000
100
= 58.82 = 32,50,000 X = 55,25,331.51
58.82
100
Required sales = Rs. 55,25,332
Required sales
Required sales per Radio =
Sales per unit
55 ,25,332
= = 13,000 Radios
425
Required sales per Radios = 13,000 Radios
Ex. 61. Calculate from the following particulars: 1) P/V ratio 2) BEP 3) Sales to earn profit of Rs.
70,000 4) Profit when sales are 3,00,000
Sales 2,00,000
Variable cost 1,50,000
Gross profit 50,000
Fixed overheads 15,000
Net profit 35,000
Calculation of P/V ratio
Sales−Variable cost
P/V ratio = X 100
Sales
2 ,00,000 – 1, 50,000
P/V ratio = X 100 = 25% P/V ratio = 25%
2 , 00,000
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
15,000
100
BEP (sales) = 25 = 15,000 X = 60,000 BEP (sales) = Rs. 60,000
25
100
Sales required to earn a profit of Rs. 70,000
¿ cost + Desired Profit
Required sales = P
Ratio
V

85
 15,000+70,000
100
= 25 = 85,000 X = 3,40,000
25
100
Required sales = Rs. 3,40,000
Calculation of profit when sales Rs. 3,00,000

New Contribution = Sales X P/V Ratio

25
= 3,00,000 X = 75,000
100
Profit = Contribution – Fixed cost
Profit = 75,000 – 15,000 = 60,000
Profit = 60,000
Ex. 62. tar Ltd., furnished you the following data relating to the year 2003
First half of the year Second half of the year
Sales 45,000 50,000
Total cost 40,000 43,000
Assuming the there is no change in price and variable costs, the fixed expenses are incurred
equally in the two half year periods
Calculate:
1) P/V ratio 2) Fixed cost 3) BEP 4) Percentage of Margin of Safety
Calculation of sales
Change in sales = 50,000 – 45,000 = Rs. 5,000
Calculation of profit
Profit = Sales – Cost
I Half = 45,000 – 40,000 = 5,000
II Half = 50,000 – 43,000 = 7,000
Change in profit = 7,000 – 5,000 = 2,000
Change∈Profit
P/V Ratio = X 100
Change∈Sales
2,000
P/V Ratio = X 100 = 40%
5,000
Calculation of contribution
Contribution = Sales X P/V Ratio
40
I Half = 45,000 X = Rs. 18,000
100
40
II Half = 50,000 X = Rs. 20,000
100
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution + Loss
I Half = 18,000 – 5,000 = 13,000 Fixed cost = Rs. 13,000
II Half = 20,000 – 7,000 = Rs. 13,000 Fixed cost = Rs. 13,000
Calculation of BEP

86
 ¿ Cost
BEP (sales) = P
Ratio
V
13,000
100
BEP (sales) = 40 = 13,000 X = 32,500
40
100
BEP (sales) = Rs. 13,500
Calculation of Margin of Safety
Margin of Safety = Actual Sales – BEP Sales
I Half Margin of Safety = 45,000 – 32,500 = Rs. 12,500
II Half Margin of Safety = 50,000 – 32,500 = Rs. 17,500
Ex. 63. Operating result of a company for the two years are as follows:
Year Sales Profit
2019 20,00,000 20,000
2020 30,00,000 40,000
Calculate: P/V ratio, BEP, Fixed cost, The profit when sales are Rs. 50,000and profit when sales
are Rs. 1,80,000
Calculation of sales
Change in sales = 30,00,000 – 20,00,000 = Rs. 10,00,000
Calculation of profit
Change in profit = 40,000 – 20,000 = 20,000
Change∈Profit
P/V Ratio = X 100
Change∈Sales
20,000
P/V Ratio = X 100 = 20%
10 ,00,000
Calculation of contribution
Contribution = Sales X P/V Ratio
20
2019 = 20,00,000 X = Rs. 40,000
100
20
2020 = 30,00,000 X = Rs. 60,000
100
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution - Profit
2019 = 40,000 – 20,000 = 20,000 Fixed cost = Rs. 20,000
2020 = 60,000 – 40,000 = 20,000 Fixed cost = Rs. 20,000

Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V
20,000
100
BEP (sales) = 20 = 20,000 X = 1,00,000
20
100
BEP (sales) = Rs. 1,00,000
Calculation of profit when sales Rs. 1,80,000

87
New Contribution = Sales X P/V Ratio
20
= 1,80,000 X = 36,000
100
Profit = Contribution – Fixed cost
Profit = 36,000 – 20,000 = 16,000
Profit = Rs. 16,000
Sales required to earn a profit of Rs. 50,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
20,000+50,000
100
= 20 = 70,000 X = 3,50,000 Required sales = Rs. 3,50,000
20
100
Ex. 64. Standard company gives you the following information:
Sales (Rs.) Profit (Rs.)
Product I 15,000 400
Product II 19,000 1,150
Calculate:
1) P/V ratio 2) The profit when sales are Rs. 12,000
3) The sales required to earn a profit of Rs. 2,000 4) Margin of safety 5) BEP
Calculation of sales
Change in sales = 19,000 – 15,000 = Rs. 4,000
Calculation of profit
Change in profit = 1,150 – 400 = 750
Change∈Profit
P/V Ratio = X 100
Change∈Sales
750
P/V Ratio = X 100 = 18.75%
4,000
Calculation of contribution
Contribution = Sales X P/V Ratio
18.75
Product I = 15,000 X = Rs. 2,813
100
18.75
Product II = 19,000 X = Rs. 3,563
100
Calculation of Fixed cost (Fixed cost for both years is same)
Fixed cost = Contribution - Profit
Product I = 2,813 – 400 = 2,413 Fixed cost = Rs. 2,413
Product II = 3,563 – 1,150 = 2,413 Fixed cost = Rs. 2,413
Calculation of BEP
¿ Cost
BEP (sales) = P
Ratio
V

88
 2,413
100
BEP (sales) = 18.775 = 2,413 X = 12,869
18.75
100
BEP (sales) = Rs. 12,869
Calculation of profit when sales Rs. 12,000
New Contribution = Sales X P/V Ratio
18.75
= 12,000 X = 2,250
100
Profit = Contribution – Fixed cost
Profit = 2,250 – 2,413 = 163
Profit = Rs. 163
Sales required to earn a profit of Rs. 2,000
¿ cost + Desired Profit
Required sales = P
Ratio
V
2,413+2,000
100
= 18.75 = 4,413 X = 12,869
18.75
100
Required sales = Rs. 12,869
Ex. 65. From the following information calculate:
a) B.E.P. in sales value b) P/V ratio if sales price is reduced by 20%
Sales- 20,000 units @ Rs. 50 per unit: P/V ratio – 40% Fixed cost Rs. 1,20,000
a) BEP in sales value
¿ cost
BEP in sales value=
P /V ratio
1, 20,000
=
40 %
1, 20,000
BEP sales Value = X 100 = 3,00,000
40
BEP sales Value = Rs. 3,00,000

b) P/V ratio if sales price is reduced by 20%

Existing sales price per unit = 50
20
Less: Reduced 20%= 50 X = 10
100
Revised selling price per unit = 40
60
Revised variable cost = 60% of sales price = 50 X = 30
100
Revised contribution per unit = Revised Sales – Revised variable cost
= 40 – 30 = 10 per unit
Revised contribution
Revised P/V ratio = X 100
Revised sales per unit
10
Revised P/V Ratio = X 100 = 25%
40

Revised P/V Ratio = 25%

89
 CASE STUDY PROBLEMS
Ex. 1. A company manufacturers 40,000 units working at 80% capacity, receives an order from
foreign dealer for 10,000 units at Rs. 55 per unit though local price is Rs. 90 per unit. Then
present cost sheet per units is as under :
Rs.
Materials ...... 20
Labour skilled (variable) ...... 10
Labour unskilled (fixed) ...... 10
Variable overheads ...... 10
Fixed overheads ...... 20
70
a) Advise the management whether to accept the order or not?
b) What do you advise if same order had come from local market?
c) If demand falls temporarily, what would be the minimum price to be quoted?
Calculation of Contribution
90
 Particulars Rs. /unit
Sales price offered 55
Less : Variable Cost :
Material 20
Labour 10
Variable O/h 10 40
Contribution 15
Calculation of Variable cost
Home market Foreign Market
Particulars
10000 units 10000 units
Materials (20 X 10,000) 2,00,000 2,00,000
Skilled labour (10 X 10,000) 1,00,000 1,00,000
Variable O/h (10 X 10,000) 1,00,000 1,00,000
Marginal Cost 4,00,000 4,00,000
Calculation of contribution:
Contribution = Sales – Variable Cost
Home Market = (10,000 X 55) - 4,00,000= 5,50,000 - 4,00,000 = 1,50,000
Foreign Market = (10,000 X 55) - 4,00,000= 5,50,000- 4,00,000 = 1,50,000
Calculation of Profit: Profit = Contribution - Fixed cost
Home Market = 1,50,000 - (1,00,000 + 2,00,000) = 5,50,000 - 30,000 = - 1,50,000 (Loss)
Note: Fixed Cost = Fixed Overhead + Unskilled labour fixed
Foreign Market = 1,50,000 - Nil = 1,50,000.
Comments:
1) If new foreign order is accepted. Contribution increased by Rs. 1,50,000 and profit also
increased by Rs. 1,50,000. So it does not effect local market, accept the foreign order
2) If the same order comes from the local market there is possibility of affect on price. So it is to
be rejected
3) Minimum price must be cover variable cost i.e. Rs. 40 per unit

Ex. 2. M/s Pande enterprises have a plant, which can produce two types of articles Viz., A and B.
They supply you the following information (per unit basis)
Product ‘A’ Product ‘B’
Rs. Rs.
Materials
A 2 kg at Rs. 3 6 -
B 3 kg at Rs. 3 - 9
Wages 2 2
Variable overhead 2 2
Selling price 15 20
Fixed cost Rs. 80,000
You are required to:
1) P/V ratio of each product
2) State which of the product will you prefer if, material is in shortage?
3) State which of the following sales mix will you recommend and why?
Sales Mix I A 12,000 units B 8,000 units
Sales Mix II A 10,000 units B 10,000 units

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 Sales Mix III A 9,000 units B 11,000 units
a) Calculation of P/V ratio of each product
Calculation of variable cost
A B
Raw material 6 9
Wages 2 2
Variable overhead 2 2
Total variable cost 10 13
Contribution = Sales – Variable cost
A = 15 – 10 = 5 B = 20 – 13 = 7
Calculation of P/V Ratio
Contribution 5 7
P/V Ratio = X 100 A= X 100 = 33.33% B= X 100 = 35%
Sales 15 20
b) If material is in short supply
Contribution
Contribution per kg =
No . of kgs of material
5 7
A= = 2.5 B= = 2.33
2 3
Product ‘A’ is preferable
3) Calculation of profit on the basis of sales mix
Particulars Sales Mix I Sales Mix II Sales Mix III

Contribution

Contribution per unit X No. of units

A 12,000 X 5 60,000

B 8,000 X 7 56,000

A 10,000 X 5 50,000

B 10,000 X 7 70,000

A 9,000 X 5 45,000

B 11,000 X 7 77,000

Contribution 1,16,000 1,20,000 1,22,000

Less Fixed cost 80,000 80,000 80,000

Profit 36,000 40,000 42,000

Recommendation: Sales Mix III is recommended because it gives more profit

Ex. 3. Manufacturer manufactures and sells 3,000 units. The cost structure is as under:
Materials Rs. 6 per unit
Wages Rs. 4 per unit
Variable overheads Rs. 2 per unit
Fixed expenses Rs. 6,000
Selling price per unit Rs. 18

92
He wants to sell another 3,000 units in the foreign market at Rs. 14 per unit. Additional
distribution cost for export will be Re. 1 per unit. Should be try to sell foreign market? Suggest the
minimum price which may be quoted in the foreign market?
Calculation of Contribution
Particulars Rs. /unit
Sales price offered 18
Less : Variable Cost :
Material 6
Labour 4
Variable O/h 2 12
Contribution 6
Calculation of Variable cost
Home market Foreign Market
Particulars
3,000 units 3,000 units
Materials (6 X 3,00) 18,000 18,000
Skilled labour (4 X 3,000) 12,000 12,000
Variable O.H. (2 x 3,000) 6,000 6,000
Additional distribution overheads export cost - 3,000
Marginal Cost 36,000 39,000
Calculation of contribution:
Contribution = Sales – Variable Cost
Home Market = (3,000 X 18) – (3,000 X 12) = 54,000 - 36,000 = 18,000
Foreign Market = (3,000 X 14) – (3,000 X 13) = 42,000 - 39,000 = 3,000
Calculation of Profit: Profit = Contribution - Fixed cost
Home Market = 18,000 - 6,000 = 12,000
Foreign Market = 3,000 Nil = 3,000
Total profit = 12,000 + 3,000 = 15,000
Comments:
1) If new foreign order is accepted. Contribution increased by Rs. 3,000 and profit also increased
by Rs. 3,000. So it does not affect local market, accept the foreign order
2) If the same order comes from the local market there is possibility of affect on price. So it is to
be rejected
3) Minimum price must be cover variable cost i.e. Rs. 13 per unit

Ex. 4. Prakash enterprises have a plant which can produce two types of articles X and Y. The
following information is available on per unit basis
Product ‘A’ Product ‘B’
Rs. Rs.
Materials
A 2 kg at Rs. 6 12 -

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 B 3 kg at Rs. 6 - 18
Wages 4 4
Variable overhead 100% of wages
Selling price 30 40
Fixed cost Rs. 1,20,000
You are required to:
1) P/V ratio of each product
2) State which of the product will you prefer if ra material is in shortage?
3) State which of the following sales mix will you recommend and why?
Sales Mix I A 14,000 units B 6,000 units
Sales Mix II A 10,000 units B 10,000 units
Sales Mix III A 8,000 units B 12,000 units
a) Calculation of P/V ratio of each product
Calculation of variable cost
A B
Raw material 12 18
Wages 4 4
Variable overhead 4 4
Total variable cost 20 26
Contribution = Sales – Variable cost
A = 30 – 20 = 10 B = 40 – 26 = 14
Calculation of P/V Ratio
Contribution 10 14
P/V Ratio = X 100 A= X 100 = 33.33% B= X 100 = 35%
Sales 30 40
b) If material is in short supply
Contribution
Contribution per kg =
No . of kgs of material
10 14
A= = Rs. 5 B= = 4.66
2 3
Product ‘A’ is preferable
3) Calculation of profit on the basis of sales mix
Particulars Sales Mix I Sales Mix II Sales Mix III

Contribution

Contribution per unit X No. of units

A 14,000 X 10 1,40,000

B 6,000 X 14 84,000

A 10,000 X 10 1,00,000

B 10,000 X 14 1,40,000

A 8,000 X 10 80,000

B 12,000 X 14 1,68,000

Contribution 2,24,000 2,40,000 2,48,000

Less Fixed cost 1,20,000 1,20,000 1,20,000

Profit 1,04,000 1,20,000 1,28,000

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Recommendation: Sales Mix III is recommended because it gives more profit

Ex. 5. Electronic equipments Ltd., manufacture og calculators.

The following particulars are provided
Material cost Rs. 80 (per unit)
Conversion (variable) cost Rs. 60 (per unit)
Dealers commission Rs. 20 (per unit)
Selling price Rs. 200 (per unit)
Fixed cost Rs. 5,00,000
Present sales 18,000 units
Capacity utilization 60%
There is acute competition increased efforts are needed to sell the products.
Suggestion have been made for increasing sales either
a) By reducing sales price by 5%
b) By increasing dealers commission by 20% over the existing rate of commission
Which of the two suggestion would you recommend to maintain present profit
At present position
Calculation of variable cost
Rs.
Material cost 80
Conversion cost 60
Dealers Commission 20
Total variable cost 160
Selling price Rs. 200
Contribution = Sales – Variable cost
= 18,000 X 200 – 18,000 X 160 = 36,00,000 - 28,80,00
Contribution = Rs. 7,20,000
Profit = Contribution – Fixed cost
Profit = 7,20,000 – 5,00,000
Profit = 2,20,000
Calculation of P/V ratio
Sales−Cariable cost
P/V ratio = X 100
Sales
36 , 00,000−28 , 80,000
P/V ratio = X 100 P/V ratio = 20%
36 ,00,000
Sales price is reduced by 5%
Calculation of selling price
Old sales price Rs. 200
5
Less: Reduced by 5% = 200 X Rs. 10
100
New sales price Rs. 190
Contribution = Sales – Variable cost
= 18,000 X 190 – 18,000 X 160 = 34,20,000 - 28,80,00
Contribution = Rs. 5,40,000
Calculation of P/V ratio
Sales−Cariable cost
P/V ratio = X 100
Sales
34 , 20,000−28 , 80,000
P/V ratio = X 100 P/V ratio = 15.79%
34 ,20,000
Required sales to earn a profit of Rs. 2,20,000
¿ cost + Desired profit
Required sales = P
Ratio
V

95
 5 ,00,000+ 2 ,20,000
Required sales = 15.79
100
100
Required sales = 7,20,000 X
15.79
Required sales = 45,59,848 or Rs. 45,60,000
Calculation of number of units
Sales
Required Units =
Sales per unit
45 , 60,000
Required Units =
190
Required Units = 24,000 Units
When the dealers commission is increased by 20%
Calculation of variable cost
Rs.
Material cost 80
Conversion cost 60
Dealers Commission 20
20
Add: Increased by 20% 20 X 4 24
100
Total variable cost 164
Calculation of selling price
Selling price = Rs. 200
Contribution = Sales – Variable cost
= 18,000 X 200 – 18,000 X 164 = 36,00,000 - 29,52,00
Contribution = Rs. 6,48,000
Profit = Contribution – Fixed cost
Profit = 6,48,000 – 5,00,000
Profit = 1,48,000
Calculation of P/V ratio
Sales−Cariable cost
P/V ratio = X 100
Sales
36 , 00,000−29 , 52,000
P/V ratio = X 100
36 , 00,000
P/V ratio = 18%
Required sales to earn a profit of Rs. 2,20,000

¿ cost + Desired profit

Required sales = P
Ratio
V
5 ,00,000+ 2 ,20,000
Required sales = 18
100
100
Required sales = 7,20,000 X
18
Required sales = 40,00,000
Required sales = Rs. 40,00,000
Calculation of number of units
Sales
Required Units =
Sales per unit
40 , 00,000
Required Units = Required Units = 20,000 Units
200

96
Comment:
1) When the sales price is reduced by 5% number of units = 24,000
2) When the dealers commission is increased by 20% number of units = 20,00
Suggestion is increase the dealers commission by 20% comparing to reducing the
sales price by 5%
Ex. 6. Raju Ltd. has a Plant which produces two types of products namely A and B. Following
information is given to you for each unit of product.
Particulars Product ‘A’ Product ‘B’
(Per unit) (Per unit)
Rs. Rs.
Sales price 80 100
Raw material (Rs. 10 per kg) 20 40
Direct wages (Rs. 4 per hour) 28 20
Variable overhead (Factory) 3 8
Variable overhead (Administrative & Selling) 1 2
Total fixed overhead Rs. 1,20,000
a) State which product is preferable if materials is in short supply
b) State which product is preferable if labour is the key factor
c) State which of the following sales mix you will recommend
Sales Mix-I Product A 5,000 units Product B 3,000 units
Sales Mix – II Product A 3,800 units Product B 4,000 units
Sales Mix – III Product A 5,800 units Product B 2,500 units (KUD 2017)
Calculation of contribution per unit
Product ‘A’ Product ‘B’
(Per unit) Rs. (Per unit) Rs.
Sales price 80 100
Less: Variable cost 52 70
Contribution 28 30
Calculation of Contribution per kg
Contribution
Contribution per kg =
Cost of raw material per kg
28 30
Product ‘A’ = & Product ‘B’ = 14 7.5
2 4
Product ‘A’ is preferable
Calculation of contribution per hour
Contribution
Contribution per hour =
Labour hours
28 30
Product ‘A’ = & Product ‘B’ = 4 6
7 5
Product ‘B’ is referable
Calculation of profitability of Mix:
1) Sales Mix – I 5,000 units of ‘A’ & 3,000 units ‘B’
Contribution from 5,000 units of ‘A’ 5,000 X 28 = 1,40,000
Contribution from 3,000 units of ‘B’ 3,000 X 30 = 90,000
Total Contribution 2,30,000
Less: Fixed cost 1,20,000
Profit 1,10,000
2) Sales Mix – II 3,800 units of ‘A’ & 4,000 units ‘B’
Contribution from 3,800 units of ‘A’ 3,800 X 28 = 1,06,400
Contribution from 4,000 units of ‘B’ 4,000 X 30 = 1,20,000
Total Contribution 2,26,000
Less: Fixed cost 1,20,000
Profit 1,06,000
2) Sales Mix – III 5,800 units of ‘A’ & 2,500 units ‘B’
Contribution from 5,800 units of ‘A’ 5,800 X 28 = 1,62,400

97
 Contribution from 2,500 units of ‘B’ 2,500 X 30 = 75,000
Total Contribution 2,37,400
Less: Fixed cost 1,20,000
Profit 1,17,400
Comment: Product Mix III is preferable
Ex. 7. From the following data which product would you recommend to be manufacture in a
factory:
Product ‘A’ Product ‘B’
Per unit Per unit
Rs. Rs.
Direct Materials 24 14
Direct labour 2 3
Variable overhead 4 6
Selling price 100 100
Standard time to produce 2 hours 3 hours
Material consumed per unit 6 kg 4 kg
When a) Material are in short supply? b) Labour is a scare factor?
c) Find P/V ratio for A and B products

Calculation of P/V ratio, BEP and Profit

Formula Firm ‘A’ Firm ‘B’

Contribution = Sales – Variable cost = 100 – 30 = 70 = 100 – 23 = 77

P/V ratio

Sales−Variable cost 100−30 100−23

= X 100 = X 100 = 70% = X 100 =
Sales 100 100
77%

If Material is in short supply

Contribution per kg = 70 77
= = 11.666 or 11.67 = = 19.25
Contribution per unit 6 4
Number of kg

If Material is in short supply Product ‘B’ is prefer

If labour is key factor

Contribution per hour = 70 77

= = 35 = = 25.666 or
Contribution per unit 2 3
Number hours 25.67

If labour is key factor Product ‘A’ is prefer

98
Ex. 8. HR Toys Ltd., has the following cost structure in respect of its export oriented toy item. The
company at present is producing 20,000 unit of these toys.
Rs. Rs.
Direct materials -20,000 units at Rs. 20 4,00,000 --
Direct labour—20,000 hours at Rs. 8 --- 1,60,000
Factory overheads:
Variable 20,000 ---
Fixed 18,000 ---
Administration overheads: (Fixed) 12,000 ---
Selling & Distribution overheads:
Variable 16,000 Fixed 4,000
Selling price unit it Rs. 400
The company is operating at 80% capacity at present.
The company has the following orders for supply of 5000 units of toys:
c) At Rs. 300 per unit from Nepal. Evaluate the offers and recommend the most profitable
one and give comparative statement of cost and profit at full capacity utilization.
Calculation of Cost for 5000 Units
Particulars Cost/Mkt. Home Mkt USA Mkt Singapur Mkt Nepal Mkt
Materials 20 1,00,000 1,00,000 1,00,000 1,00,000
Wages 8 40,000 40,000 40,000 40,000
Variable Expenses :
Variable factory O/h 1 5,000 5,000 5,000 5,000
Selling & distribution O/h 0.8 4,000 4,000 4,000 4,000
Addition distribution on Export
Cost 5% on 340 = 17 x 5000 --- --- 85,000 --- ---
Marginal Cost 1,49,000 2,34,000 1,49,000 1,49,000
Calculation of Sales price in Home & Foreign Market
Particulars H.M. USA M. S.M. N. M.
Sales 5,000 Units 5,000 Units 5,000 Units 5,000 Units
Sales Price Per unit 400 340 315 300
Contribution Sales –variable 20,00,000 17,00,000 15,75,000 15,50,000
Calculation of Profit = contribution - Fixed Cost
1) H.M = Profit = 18,51,000 - 8,500 = 18,42,500
2) USA Market = Profit = 14,66,000 – Nil =14,66,000
3) Singapur Market = Profit = 14,26,000 - Nil = 14,26,000
4) Nepal = Profit = 13,51,000 – Nil =13,51,000
Selling in USA market is worth even though the extra export duty is impose @ 5%. It yield
more profit compare to export to Singapore or Nepal. Hence the order to export USA market Rs.
340 Unit is accepted. Fixed expenses have already been meet from internal market.
Ex. 9. The following details relate to the manufacturer of two products J & K.
Product-J (P.U) Product-K(P.U.)
Selling Price (Rs.) 80 100
Materials (Rs. 10 per Kg) 20 40
Direct Wages (Rs. 4 per hour) 28 20
Overhead variable (Rs.) 4 10
Total fixed overhead Rs. 12,000.
Which of the product would you recommend under each of the following circumstances?
i) When total sales potential in units is limited ii ) When Sales potential in value is limited
iii) When raw material is in short supply
Statement showing profit with existing and proposed production
Particulars Existing Additional Total
10,000 units 10,000 units

99
 Rs. Rs. 12,000 units

Rs.

A) Sales 70,000 13,000 83,000

Total (A) 70,000 13,000 83,000

B) Variable cost:

Material Rs. 2 per unit 20,000 4,000 24,000

Labour Re. 1 per unit 10,000 2,000 12,000

Variable overhead Rs. 3 per unit 30,000 6,000 36,000

Total (B) 60,000 12,000 72,000

Contribution (A – B) 10,000 1,000 11,000

Less Fixed cost 20,000 - 20,000

Loss - 10,000 - - 9,000

Advice: If the company accept the offer the loss will be reduced from Rs. 10,000 to Rs. 9,000.
Thus offer should accept as it will earn foreign exchange and export subsidy if any.
Ex. 10. A Radio manufacturing company finds that the existing cost of a component, M-200 is
Rs. 6.25. The same component is available in the market at Rs. 5.75 each, with an assurance of
continued supply.
The breakup of the existing cost of the component is:
Rs.
Material 2.75
Labour 1.75
Other variables 0.50
Depreciation & other fixed cost 1.25
a) Should Co., make or buy? When the firm cannot utilize the capacity elsewhere, profitability,
and when capacity can be utilize profitability
b) What would be your decision, if the supplier has offered the component at Rs. 4.50 each?
Calculation of profitability
Selling price = Rs. 5.75
Variable cost
Rs.
Material 2.75
Labour 1.75
Other variables 0.50
Total Variable cost 5.00
Contribution = Sales – Variable cost
= 5.75 - 5 = 0.75
Profit = Contribution – Fixed cost
= 0.75 – 1.25
Loss = 0.5
Because of loss it is better to buy. If the buyer is ready to supply at Rs. 4.50
Ex. 11. The Directors of RIBCO Ltd., company are considering sales budget for the next budget
period. From the following information you are required to show clearly to management:
1) The marginal product cost and contribution per unit
2) The total contribution resulting from each of following sales mixtures
Product X Product Y

100
 Rs. Rs.
Selling price 200 150
Direct material 100 90
Direct wages 30 20
Fixed expenses are allotted to products as 100% of direct wages.
Sales Mixture: a) 1,000 units of product X and 2,000 units of Y b) 1,500 units of product X and
1,500 units of Y c) 2,000 units of product X and 1,000 units of Y
Recommend which of the Sales Mixtures should be adopted.
(KUD 2018)
Calculation of variable cost
X Y
Raw material 100 90
Wages 30 20
Variable overhead 30 20
Total variable cost 160 130
Contribution = Sales – Variable cost
X = 200 – 160 = 40 Y = 150 – 130 = 20
Product ‘X’ is preferable
3) Calculation of profit on the basis of sales mix
a) Sales mix 1,000 units of b) Sales mix 1,500 units of b) Sales mix 2,000 units of
product X & 2,000 units of product X & 1,500 units of product X & 1,000 units of
Y Y Y

X 1,000 X 40 = 40,000 X 1,500 X 40 = 60,000 X 2,000 X 40 = 80,000

Y 2,000 X 20 = 40,000 Y 1,500 X 20 = 30,000 Y 1,000 X 20 = 20,000

Total contribution 80,000 Total contribution 90,000 Total contribution 1,00,000

Less: Fixed cost 80,000 Less: Fixed cost 80,000 Less: Fixed cost 80,000

Profit NIL Profit 10,000 Profit 20,000

Recommendation: Sales Mix III is recommended because it gives more profit.

Ex. 12. Akash Ltd., has a plant which produces two type of products namely M & N. Following
information is given to you for each unit of product.
Particulars Product M Product N

Per unit (Rs.) Per unit (Rs.)

Selling price 200 250

Direct Materials (Rs. 10 per kg 50 100

Direct Wages (Rs. 5 per hour) 70 50

Variable overhead 10 25

Total fixed cost Rs. 3,00,000

a) State which product is preferable if material is in short supply
b) State which product is preferable if labour is the key factor
c) State which of the following sales mix you will recommend:
Sales Mix Product M Product N
101
 I 2,000 units 3,000 units
II 2,500 units 2,500 units
III 3,000 units 2,000 units
Calculation of variable cost
M N
Raw material 50 100
Wages 70 50
Variable overhead 10 25
Total variable cost 130 175
Contribution = Sales – Variable cost
M = 200 – 130 = 70 N = 250 – 175 = 75
a) If Material is the short
Contribution
Contribution per kg of Material =
No . og kg .
70 75
M= = 14 N = = = 7.5
5 10
Product ‘M’ is preferable

b) If the labour is the key factor

Direct wages 70 50
Labour hour per unit = =M= = 14 N== = 10
Rate per hour 5 5
Contribution 70 75
Contribution per labour hour = =M= =5 N== = 7.5
Labour hour 14 10
Product ‘M’ is preferable
c) Calculation of profit on the basis of sales mix
a) Sales mix 2,000 units of b) Sales mix 2,500 units of b) Sales mix 3,000 units of
product M & 3,000 units of product M & 2,500 units of product M & 2,000 units of
N N N

M 2,000 X 70 = 1,40,000 M 2,500 X 70 = 1,75,000 M 3,000 X 70 = 2,10,000

N 3,000 X 75 = 2,25,000 N 2,500 X 75 =1,87,500 N 2,000 X 75 = 1,50,000

Total contribution 3,65,000 Total contribution 3,62,500 Total contribution 3,60,000

Less: Fixed cost 3,00,000 Less: Fixed cost 3,00,000 Less: Fixed cost 3,00,000

Profit 65,000 Profit 62,500 Profit 60,000

Recommendation: Sales Mix I is recommended because it gives more profit.

Ex. 13. From the following particulars calculate:
a) B.E.P. Sales b) P/V Ratio c) Profit on budgeted sales
The particulars are:
i) Budgeted sales during 2019-20 amounted to Rs. 1,60,000 (80% capacity)
ii)Direct material cost: 35% of sales
iii) Direct labour cost 25% of sales
iv) Variable factory overheads: 10% of sales
v) Variable Administrative overhead: 5% of sales
vi) Fixed cost Rs. 20,000

102
Calculate the amount of profit if the firm operates at 100% capacity
(KUD 2020)
Calculation of Marginal cost in percentage
Particulars Rs. Rs.

Sales price 100

Less: Variable cost

Direct Material 35

Direct Labour 25

Overhead Factory 10

Administration & Selling 5 75

Contribution per unit 25

Marginal cost is 75% of sales price

Sales 1,60,000
Less: Marginal cost 75% of 1,60,000
75
= 1,60,000 X = 1,20,000
100
Contribution 40,000
1) Calculation of P/V Ratio
Contribution 40,000
P/V Ratio = X 100 = X 100 = 25%
Sales 1, 60,000
2) Calculation of BEP (Sales in Rupees
¿ cost 20,000 100
BEP = = = 20,000 X = 80,000
P /V Ratio 25 % 25
3) Profit on Budgeted sales of Rs. 1,60,000
Profit = Sales – Variable cost – Fixed cost = 1,60,000 – 1,20,000 – 20,000 = 20,000
4) Profit on sale at 100% capacity
Sales at 80% capacity is 1,60,000
1, 60,000
∴ Sales at 100% capacity is X 100 = 2,00,000
80
Profit = Sales – Variable cost – Fixed cost
75
= 2,00,000 – ( X 2,00,000) – 20,000
100
= 2,00,000 – 1,50,000 – 20,000
Profit = 30.000
Ex. 14. From the following data which product would you recommend to manufacture in a
factory:
Product ‘A’ Product ‘B’
Per unit Rs. Per unit Rs.
Selling price 100 100
Direct Materials at Rs. 4 per kg 24 16
Direct labour at Rs. 2 per hour 6 10
Variable overhead 4 6
Machine hours used 4 hours 3 hours
Which of the product would you recommend under each of the following circumstances?
When a) Material is in short supply?b) Labour is a scare factor?
c) Production capacity (in terms of machine hours) is the limiting factor.
103
 Calculation of total variable overhead
Product ‘A’ Product ‘B’
Per unit Rs. Per unit Rs.
Direct Materials at Rs. 4 per kg 24 16
Direct labour at Rs. 2 per hour 6 10
Variable overhead 4 6
Total variable overhead 34 32
Calculation of P/V ratio, BEP and Profit
Formula Firm ‘A’ Firm ‘B’

Contribution = Sales – Variable cost = 100 – 34 = 66 = 100 – 32 = 68

P/V ratio

Sales−Variable cost 100−34 100−32

= X 100 = X 100 = 66% = X 100 =
Sales 100 100
68%

If Material is in short supply

Contribution per kg = 66 68
= = 11 = = 17
Contribution per unit 6 4
Number of kg

If Material is in short supply Product ‘B’ is prefer

If labour is scare factor

Contribution per hour = 66 68

= = 22 = = 13.6
Contribution per unit 3 5
Number hours

If labour is key factor Product ‘A’ is prefer

Ex. 15. From the following data which product would you recommend and why to be
manufactured in a factory time being the key factor
Particulars Product ‘A’ Product ‘B’
Per unit Per unit
Direct Material 48 28
Direct Labour 10 8
Overheads
Variable Rs. 3 per hour
Fixed 5 5
Selling price 150 100
Standard time to produce 3 hours 4 hours
Calculation of Variable cost
Particulars Product ‘A’ Product ‘B’
Per unit Per unit
Direct Material 48 28
Direct Labour 10 8
104
 Overheads
Variable X = 3 X 3 9
Y=3X4 - 12
Total variable cost 67 48
Calculation of P/V ratio, BEP and Profit
Formula Product ‘A’ Product ‘B’

Contribution = Sales – Variable cost = 150 – 67 = 83 = 100 – 48 = 52

P/V ratio

Sales−Variable cost 150−67 100−48

= X 100 = X 100 = = X 100 =
Sales 150 100
55.33% 52%

If factory time being the key factor

Contribution per hour = 83 52

= = 27.666 or 27.67 = = 13
Contribution per unit 3 4
Standard time

If the time is key factor Product ‘A’ is beneficial comparing to product ‘B’
Ex. 16. Adarsh Company Ltd., manufacturers three products and the following information id
provided:
Particulars A B C
Sales Mix 35% 35% 30%
Selling price per unit 30 40 20
Variable cost per unit 15 20 12
Total Fixed cost Rs. 1,80,000
Total sales Rs. 6,00,000
The company has a proposal to discontinue the product ‘C’ and replace it with ‘P’ and the
following result are anticipated:
Particulars A B P
Sales Mix 50% 25% 25%
Selling price per unit 30 40 30
Variable cost per unit 15 20 15
Total Fixed cost Rs. 1,80,000
Total sales Rs. 6,40,000
Calculate the present profitability position and profitability if product ‘C’ is replaced by product
‘P’. Will you advice the company to change over to product ‘P’ with reasons

Present position
Calculation of sales
35 35
Product ‘A’ = 6,00,000 X = 2,10,000 Product ‘B’ = 6,00,000 X = 2,10,000
100 100
30
Product ‘C’ = 6,00,000 X = 1,80,000
100
Calculation of number of units sold
Sales price
Number units sold = =
Sales price per unit
105
 2 ,10,000 2 ,10,000 1.80.000
Product ‘A’ = = 7,000 Product ‘B’ = = 5,250 Product ‘C’ = =
30 40 20
9,000
Calculation of variable cost
Variable cost = Units sold X Variable cost per unit
Product ‘A’ = 7,000 X 15 = 1,05,000 Product ‘B’ = 5,250 X 20 = 1,05,000
Product ‘C’ = 9,000 X 12 = 1,08,000
Calculation of profit
A B C Total
Sales 2,10,000 2,10,000 1,80,000 6.00.000
Less: Variable cost 1,05,000 1,05,000 1,08,000 3,18,000
Contribution 1,05,000 1,05,000 72,000 2,82,000
Less: Fixed cost 1,80,000
Profit 1,02,000
If the product ‘C’ is replaced by product ‘P’
Calculation of sales
50 25
Product ‘A’ = 6,40,000 X = 3,20,000 Product ‘B’ = 6,40,000 X = 1,60,000
100 100
25
Product ‘P’ = 6,40,000 X = 1,60,000
100
Calculation of number of units sold
Sales price
Number units sold = =
Sales price per unit
3 ,20,000 1, 60,000 1.60.000
Product ‘A’ = = 10,667 Product ‘B’ = = 4,000 Product ‘P’ = =
30 40 30
5,333
Calculation of variable cost
Variable cost = Units sold X Variable cost per unit
Product ‘A’ = 10,667 X 15 = 1,60,005 Product ‘B’ = 4,000 X 20 = 80,000
Product ‘P’ = 5,333 X 15 = 79,995
Calculation of profit
A B P Total
Sales 3,20,000 1,60,000 1,60,000 6.40.000
Less: Variable cost 1,60,005 80,000 79,995 3,20,000
Contribution 1,59,995 80,000 80,005 3,20,000
Less: Fixed cost 1,80,000
Profit 1.40,000
Comment: Change in mix profit is increased by Rs. 38,000 ( 1,40,000 – 1,02,000). Hence
it is suggested that company change in the product mix
Ex. 17. Find which of the product is most profitable from the following:
Particulars Product M Product N

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 Per unit (Rs.) Per unit (Rs.)

Selling price 100 150

Direct Materials (Rs. 10 per kg 20 40

Direct Wages (Rs. 5 per hour) 25 30

Variable overhead 15 20

Total fixed cost Rs. 1,00,000

The product Mix combinations are:
Sales Mix Product A Product B
I 5,000 units 3,000 units
II 4,000 units 4,000 units
III 2,000 units 6,000 units
Calculation of variable cost
A B
Raw material 20 40
Wages 25 30
Variable overhead 15 20
Total variable cost 60 90
Contribution = Sales – Variable cost
A = 100 – 60 = 40 B = 150 – 90 = 60
c) Calculation of profit on the basis of sales mix
a) Sales mix 5,000 units of b) Sales mix 4,000 units of b) Sales mix 2,000 units of
product A & 3,000 units of product A & 4,000 units of product A & 6,000 units of
B B B

A 5,000 X 40 = 2,00,000 M 4,000 X 40 = 1,60,000 M 2,000 X 40 = 80,000

B 3,000 X 60 = 1,80,000 N 4,000 X 60 =2,40,000 N 6,000 X 60 = 3,60,000

Total contribution 3,80,000 Total contribution 4,00,000 Total contribution 4,40,000

Less: Fixed cost 1,00,000 Less: Fixed cost 1,00,000 Less: Fixed cost 1,00,000

Profit 2,80,000 Profit 3,00,000 Profit 3,40,000

Recommendation: Sales Mix III is recommended because it gives more profit.

Ex. 18. A company manufacturers 80,000 units of ‘Best’ product working at 80% capacity,
receives an order from foreign dealer for 20,000 units at Rs. 100 per unit though local price is Rs.
185 per unit. Then present cost structure is given below:
Rs.
Materials ...... 40
Labour skilled (variable) ...... 25
Labour unskilled (fixed) ...... 10
Variable overheads ...... 20
Fixed overheads ...... 25

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a) Advise the management whether to accept the order or not?
b) What do you advise if same order had come from local market?
c) If demand falls temporarily, what would be the minimum price to be quoted?

Calculation of sales
Home Market Foreign Market Total
Particulars
80,000 units 20,000 unit
Sales price
Home Market 80,000 X 185 1,48,00,000
Foreign Market 20,000 X 100 20,00,000
1,68,00,000
Calculation of Variable cost
Home market Foreign Market Total cost
Particulars
80,000 units 20,000 units
Materials Rs. 40 per unit 32,00,000 8,00,000 40,00,000
Skilled labour Rs. 25 per unit 20,00,000 5,00,000 25,00,000
Variable O/h Rs. 20 per unit 16,00,000 4,00,000 20,00,000
Marginal Cost 68,00,000 17,00,000 85,00,000
Calculation of contribution:
Contribution = Sales – Variable Cost
Home Market = 1,48,00,000 – 68,00,000 = 80,00,000
Foreign Market = 20,00,000 - 17,00,000 = 3,00,000
Calculation of Profit: Profit = Contribution - Fixed cost
Home Market = 80,00,000 – (80,000 X 25) = 80,00,000 – 20,00,000 = 60,00,000
Foreign Market = 3,00,000 - Nil = 3,00,000.
Comments:
1) If new foreign order is accepted. Contribution increased by Rs. 3,00,000 and profit also
increased by Rs. 3,00,000. So it does not effect local market, accept the foreign order
Problems on Make or Buy the product
Ex. 19. Manu Radio manufacturing company finds that while it costs Rs. 250 each that make
components ‘X’ the same is available in the market at Rs. 230 each with an assurance of
continued supply. The break down costs is Number of components ‘X’ to be manufactured 10,000
Rs.
Materials 10,80,000
Labour 7,20,000
Variable overheads 2,00,000
Administrative overheads (fixed) 1,00,000
Depreciation (fixed) 4,00,000
Total costs 25,00,000
a) Should the company ‘Make or Buy’
b) What should be your decision, if the supplier offered the component at Rs. 190?
Calculation of variable cost
Rs.
Materials 10,80,000
Labour 7,20,000
Variable overheads 2,00,000
Total variable costs 20,00,000
Calculation of variable cost per unit

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 Total variable cost 20 , 00,000
Variable cost per unit = = = 200 per unit
Number of units 10,000
1) The variable cost is Rs. 200 but components available in the market is Rs. 230 it is above the
marginal cost. It is advice that not buy but make it
2) If supplier is supplied at Rs. 190. It is below the variable cost. So it is better to buy & not make
it.
Ex. 20. From the following particulars calculate:
a) B.E.P. Sales b) P/V Ratio c) Profit on budgeted sales
The particulars are:
i) Budgeted sales during 2019-20 amounted to Rs. 1,60,000 (80% capacity)
ii)Direct material cost: 35% of sales
iii) Direct labour cost 25% of sales
iv) Variable factory overheads: 10% of sales
v) Variable Administrative overhead: 5% of sales
vi) Fixed cost Rs. 20,000
Calculate the amount of profit if the firm operates at 100% capacity
Calculation of Marginal cost in percentage
Particulars Rs. Rs.

Sales price 100

Less: Variable cost

Direct Material 35

Direct Labour 25

Overhead Factory 10

Administration & Selling 5 75

Contribution per unit 25

Marginal cost is 75% of sales price

Sales 1,60,000
Less: Marginal cost 75% of 1,60,000
75
= 1,60,000 X = 1,20,000
100
Contribution 40,000

1) Calculation of P/V Ratio

Contribution 40,000
P/V Ratio = X 100 = X 100 = 25%
Sales 1, 60,000
2) Calculation of BEP (Sales in Rupees
¿ cost 20,000 100
BEP = = = 20,000 X = 80,000
P /V Ratio 25 % 25
3) Profit on Budgeted sales of Rs. 1,60,000
Profit = Sales – Variable cost – Fixed cost = 1,60,000 – 1,20,000 – 20,000 = 20,000
4) Profit on sale at 100% capacity
Sales at 80% capacity is 1,60,000
1, 60,000
∴ Sales at 100% capacity is X 100 = 2,00,000
80
Profit = Sales – Variable cost – Fixed cost

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 75
= 2,00,000 – ( X 2,00,000) – 20,000
100
= 2,00,000 – 1,50,000 – 20,000
Profit = 30.000

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