BREAK EVEN POINT ANALYSIS NUMERICALS

Q. 38. ABC Ltd. Data is given below:

You are required to calculate the Break Even point and Margin of safety and also to
provide information to the management regarding the possible effects of the following
contingencies (each to be considered separately.)
1. Fixed costs increase by 10%
2. Variable costs decrease by 20%
3. Selling price is increased by 20%.
Suitable charts may be presented showing the effect of these change in profit factors
Workings:

Note : Since fixed costs have increased by Rs. 6,000 profit will be reduced to some extent:
(because other factors are remaining constant). This can be verified as follows:

Sales = Rs.2,00,000

Note : Since fixed costs have increased the Break-even sales will also be increased, in the chart
shown below, the total costs line and the sales line intersect at a point indicating break-even sales
of Rs. 1,32,000. Thus break-even sales is increased by Rs.12,000 (i.e., to absorb the additional
fixed costs of Rs. 6,000. The company has to effect the sales for Rs. 12,000 more and react the
B.E.P.) This can be checked as follows:

i.e., an increase of Rs. 12,000.

At the present level of sales, the break-even sales have increased. Therefore, the remaining
margin(Margin of Safety) will be decreased i.e.,

Q. 40. From the following data, calculate B.E.P. and P.V.R.

. From the following, calculate the Cash Break-even Point.

Q. 42. Sales are Rs 150,000 producing a profit of Rs. 4,000 in period 1. Sales are Rs.
1,90,000 producing a profit of Rs. 12,000 in period II. Determine the BEP.
Difference in profit = Rs. 8,000
Difference in sales = Rs. 40,000
Since the change in the sale must have led to the change in the profit, P/V ratio:
Rs. 8,000 x 100 = 20%
Rs. 40,000
At BEP, Profit = Nil
If Rs. 20 is to be reduced from profit, sales must be reduced by Rs. 100. To reduce profit by Rs.
4,000 reduction in sale:
(100 x Rs. 4,000/20 = 20,000
B.E.P. = Rs. 1,30,000 (i.e. sales producing profit of Rs. 4,000 less reduction in sales of Rs,
20,000 to wipe out the profit)
Alternatively
Total contribution on Rs. 1,50,000 @ 20%

Rs. 30,000

Profit

Rs. 4,000

Fixed expenses

Rs. 26,000

Q. 43. From the following figures ascertain the

break-even sales.
4

Total cost equals sales, hence, there is neither profit nor loss.
Q44. The sales of company are @ Rs. 200 per unit
Variable cost
Fixed cost

Rs. 20,00,000

Rs. 12,00,000
Rs. 6,00,000

The capacity of the Factory

15,000 units

Determine the BEP. How much profit is the company making?

(* Total number of units is 10,000 since sale at Rs. 200 per units is Rs. 20,00,000. Therefore
variable cost per unit is Rs. 12,00,000 10,000 = Rs. 120)
Profit being earned

At break-even point, the contribution is just equal to fixed costs, any sales above the Bill also
provide the profit contribution. But as fixed costs are all met already such contributions become
completely profit. The sales above BEP are known as margin of safety 1 he contribution from
margin of safety sales is profit As P/V ratio is (contnbution/ sales) x 100 and as profit is the
contribution from these sales above BEP (i.e.), margin of safety, the following formula also is
true.

Margin of Safety
Thus, in the above illustration margin of safety sales = 2,500 units x Rs. 200 = 5,00,000.
Profit = Rs. 2,00,000

Q. 45. From the following information

calculate:
(1) P.V. ratio

(ii) Break even point

(iii) Margin of Safety

Total sales

Rs. 3,60,000
6

Fixed cost
Selling price

Rs. 1,00,000
Rs. 100/Unit

Variable cost (per unit) = Rs. 50

(iv) if the selling price is reduced to Rs. 90 by how much is the margin of safety reduced ?