Scribd
Upload
80 views5 pages

How Many Radios: CVP Analysis

Western Radio Company sold 10,000 radios last year at Rs. 500 each. The marginal cost per radio is Rs. 175 and total cost is Rs. 375. Due to competition, the price must be reduced to Rs. 425. To ensure the same total profit as last year, the number of radios that must be sold is calculated. The document contains 4 questions regarding break-even analysis, profit calculation, and the impact of changes in price, units sold, fixed costs, and variable costs on profits. Formulas for calculating break-even point, units required to reach a profit target, and units required for a target net income percentage are provided across the questions. An example of a company that transitioned

Uploaded by

Mba B
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
80 views5 pages

How Many Radios: CVP Analysis

Western Radio Company sold 10,000 radios last year at Rs. 500 each. The marginal cost per radio is Rs. 175 and total cost is Rs. 375. Due to competition, the price must be reduced to Rs. 425. To ensure the same total profit as last year, the number of radios that must be sold is calculated. The document contains 4 questions regarding break-even analysis, profit calculation, and the impact of changes in price, units sold, fixed costs, and variable costs on profits. Formulas for calculating break-even point, units required to reach a profit target, and units required for a target net income percentage are provided across the questions. An example of a company that transitioned

Uploaded by

Mba B
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 5

CVP ANALYSIS

Q. 1

Western Radio Company sold 10,000 radios last year at a price of


Rs.500 each. The cost structure per radio is as follows:

Materials Rs.100
Labour Rs.50
Variable Overheads Rs.25
Marginal Cost Rs. 175
Fixed Overheads Rs.200
Total Cost Rs.375
Due to competition, the price has to be reduced to Rs.425 for the
coming year. Assuming that there will be no change in cost, find out
how many radios shall be sold to ensure the same amount of total
profit as last year.

Q. 2 The following data is given:


Selling Price Rs.20/unit
Variable Manufacturing Cost Rs.11/unit
Variable Selling Costs Rs.3/unit
Fixed Factory OH Rs.5,40,000 per year
Fixed Selling Costs Rs.2,52,000 per year
You are required to compute:
i) Break even point expressed in amount of sales in rupees.
ii) Number of units that must be sold to earn a profit of
Rs.60,000 per year.
iii) How many units must be sold to earn a net income of 10% of
sales?
Q. 3 A company sold in two successive period 7,000 units and 9,000
units and has incurred a loss of Rs.10,000 and earned Rs.10,000 as
profit respectively. The selling price per unit can be assumed at
Rs.100.
You are required to calculate:
1) The amount of fixed cost (80,000)
2) The number of units to break even (8000 UNITS)
3) The number of units to earn a profit of Rs.40,000. (12,000
units)
Q. 4 A company budgets for a production of 1,50,000 units. The
variable cost per unit is Rs.14 and fixed cost is Rs. 2 per unit. The
company fixes its selling price to fetch a profit of 15% on cost.
a) What is BEP (68,182, Rs.12,54,549)
b) what is P/V ratio (23.91%)
c) if it reduce its selling price by 5%, how the revised selling price
affect the BEP and P/V ratio. (new BEP 86,207, 19.9%).
d) if a profit increase of 10% is desired more than the budget, what
should be sales at reduced price. (2,00,000 units, Rs.34,96,000 )
New SP 17.48

Q. 4
The VIP company retails two products, a standard and a deluxe
version of a luggage carrier. The budgeted income statement for
next period is as follows :

Standard Deluxe carrier total


carrier
Units sold 1,50,000 50,000 2,00,000
Revenues @Rs.1000 1500,00,000 750,00,000 2250,00,000
and
Rs. 1500 per unit
VC @ Rs. 700 and 1050,00,000 450,00,000 1500,00,000
900 per unit
Contribution 450,00,000 30,00,000 750,00,000
margin @ 300 and
600 per unit
Fixed cost 600,00,000
Operating income 150,00,000
1. Compute break even point, in units, assuming that the planned
sales mix is attained. (delux 40,000 and std 1,20,000)
2. Compute break even point, in units a) if only standard carriers
are sold b) if only deluxe carriers are sold. (a – 2,00,000 and b-
1,00,000)
CASE STUDY

CVP IN MODERN MANFACTURING ENVIRONMENT

A division of Hewlett-Packward Company changed its production operations from one


where a large labour force assembled electronic components to an automated production
facility dominated by computer-controlled robots. The change was necessary because of
fierce competitive pressures. Improvement in quality, reliability and flexibility of
production schedules were necessary just to match the competition. As a result of the
change, variable costs fell and fixed costs increased, as shown in the following assumed
budgets:

Old production operation New production operation


Unit Variable Cost:
Material $0.88 $0.88
Labour $1.22 $.22

TOTAL PER UNIT $2.10 $1.10


Monthly fixed Cost:
Rent & Depreciation $4,50,000 $8,75,000
Supervisory Labor $80,000 $1,75,000
Other $50,000 $90,000

TOTAL PER MONTH $5,80,000 $11,40,000


Expected volume is 6,00,000 units per month, with each unit selling for $3.10. Capacity is
8,00,000 units.

1. Compute the budgeted profit at the expected volume of 6,00,000 units under both
the old and new production environment.
2. Compute the budgeted break even point under both the old and the new production
environment.
3. Discuss the effect on profit if volume falls to 5,00,000 units under both the old and
the new production environment.
4. Discuss the effect on profit if volume increses to 7,00,000 units under both the old
and the new production environment.
5. Comment on the riskiness of new operation versus the old operation.

You might also like