Q1. Diva Products produces scarves.
The estimated fixed costs for the year are $164,500, and the
estimated variable costs per unit are $9. The company expects to produce and sell 40,000 scarves
at a unit selling price of $16 per unit. How much is the break-even point in units?
Q2. At Bahama Foods, the break-even point is 1,600 units. If fixed costs total $44,000 and
variable costs are $12 per unit, what is the selling price per unit?
Q3. Widgely Sales Company’s break-even point is 12,200 units. Each unit incurs variable costs
of $2.20 and is sold for $4.90. How much are total fixed costs?
Q4. Splurge Electronics sells sewing machines for $80 each. Variable costs per unit are $45 and
total fixed costs are $43,750. Splurge is considering the purchase of new equipment that would
increase fixed costs to $48,700, but decrease the variable costs per unit by $5. At that level,
Splurge Electronics expects it can sell 1,500 units next year. What is the company’s break-even
point in units if it purchases the new equipment, assuming the selling price remains constant?
Q5. Consider the following data for a chocolate manufacturing company:
Amount (in Rs.)
Selling price p.u. 50
Raw Material p.u. 10
Labour p.u. 8
Depreciation on Machineries p.m. 1,20,000
Depreciation on office equipments p.m. 50,000
Salary of production manager p.m. 40,000
Salaries for office staff p.m. 75,000
Primary Packing p.u. 4
Selling commission p.u. 5
In the month of Aug, 2021 the company has sold 14,000 units of chocolate.
Compute the amount of profit for the month of Aug 2021.
How many number of chocolates the company need to sell in a month to so that company
neither incurs a loss nor earns a profit.
How many number of chocolates the company needs to sell to earn a profit of Rs.60,000?
Rs. 80,000? Rs. 1,00,000?
Assume that the company pays tax @ 30% on its profits. How many units does the
company needs to sell to earn an after-tax profit of Rs.50,000?
Q6. M Ltd. manufactures three products P, Q and R. The unit selling price of these products are
Rs.100, Rs.80 and Rs.50 respectively. The corresponding unit variable costs are Rs.50, Rs.40
and Rs.20. The proportions (quantity wise) in which these products are manufactured and sold
are 20%, 30% and 50% respectively. The total fixed costs are Rs.14,80,000.
Given the above information you are required to work out overall break even quantity and
product wise break up of such quantity.
Q7. A Japanese soft drink is planning to establish a subsidiary company in India to produce
mineral water.
Based on the estimated annual sales of 40,000 bottles of mineral water, cost studies produced the
following estimates for Indian Subsidiary:
Total Annual Percent of total annual
Costs (Rs.) cost which is variable
Material 210,000 100%
Labour 150,000 80%
Factory overheads 92,000 60%
Administration expenses 40,000 35%
The Indian production will be sold by the manufacturer's representatives who will receive a
commission of 8% of the sale price.
i. What should be the selling price per bottle at the estimated annual sales of 40,000 units to
earn a net profit of 10% on sales.
ii. What will be the break even point in units and in Rupee sales at the above computed
selling price.
Q8. Suppose a Holiday Inn Hotel has annual fixed costs applicable to its rooms of $1.2 million
for its 300-room hotel, average daily room rents of $50, and average variable costs of $10 for
each room rented. It operates 365 days per year.
What is the amount of net income on rooms that will be generated if the hotel is half full
throughout the entire year?
What is the break even point in number of room days?
What is the percentage of occupancy needed to break even?
Q9. General Hospital has total variable costs of 80% of total revenues and fixed costs of $5
million per year. There are 50,000 patient-days estimated for next year. What is the average
daily revenue per patient necessary to breakeven?
Q10. Berea Company currently sells 19,000 units. Total fixed costs are $84,000, and the
contribution margin per unit is $6.00. Berea’s tax rate is 40%. What is the margin of safety in
units?
Q11. Muy Mal Company, a producer of salsa, has the following information:
Income tax rate 30%
Selling price per unit $5.00
Variable cost per unit $3.00
Total fixed costs $90,000
How many number of units must be sold to obtain a targeted after-tax income of $14,000?
Q12. ABC Ltd. has installed capacity of 1,20,000 units per annum. The cost structure of the
product manufactured is as under:
Variable Cost:
Materials Rs.8
Labour Rs.8
Overheads Rs.3
Fixed overheads Rs.168750 per annum
Semi variable overheads Rs.48,000 per annum at 60% capacity and Rs.60,000 per annum at 80%
capacity.
The capacity utilization for next year is estimated at 60% for first two months , 70% for next six
months and 80% for rest of the year. Company is planning to have a profit of 25% on sales.
Compute the selling price per unit and break even point in units at the computed selling price.
Q13. 6000 pen drives of 8GB to be sold in a perfectly competitive market to earn Rs.1,06,000
of profit, whereas in monopoly only 1200 units are required to be sold to earn the same profit.
The fixed costs for the period are Rs.74,000. The contribution per unit in monopoly market is as
high as three fourth of its variable costs. Determine the tselling price per unit under each market
condition.
Answers:
Questio
n Answer
Q1 23500 units
Q2 $39.50
Q3 $32,940
Q4 1,218 units
Rs.37,000; 12391 units; 15,000 units; 15,870 units; 16,740 units; 15497
Q5 units
Q6 40,000 units; 8,000 units/12,000 units/20,000 units
Q7 Rs.15 per unit; 24,294 units; Rs.364,398
Q8 $990,000; 30,000 rooom days; 27.4%
Q9 $500
Q10 5,000 units
Q11 55,000 units
Q12 Rs.28.8; 19,436 units
Q13 Perfect competition- Rs.230; Monopoly - Rs.350
