SELECTED PROBLEMS ON CVP & BEP ANALYSIS :

1. Last year’s results for a division of Manufacturing Company are summarized as follows:
Rs.
Sales 5,70,000
Variable Costs 3,80,000
Fixed Costs 1,90,000
Assuming no change is made in the sale price or variable costs or fixed costs, you are
required to answer the following questions :
a) What is the Break-even levels of sales ?
b) What sales are required to produce a profit of Rs. 25,000 ?
c) What profit should be achieved if sales were Rs. 7,20,000
Ans : P/V Ratio = 33.33%, a) BES = Rs. 5,70,000, b) Rs. 6,45,000 , c) Rs. 50,000
2. The UK Industries specialize in the manufacture of small capacity motors. The cost structure of a
motor is as under :
Material Rs. 50
Labor Rs. 80
Variable Overhead Rs. 75% of Labor Costs
Fixed Overhead of the company amount to Rs. 2,40,000 per annum. The sale price of
the motor is Rs. 230 each.
a) Determine the no. of motors that have to be manufactured and sold in a year in order to Break-Even.
b) How many motors have to be made and sold to make a profit of Rs. 1,00,000 per year ?
c) If the sale price is reduced by Rs. 15 each, how many motors have to be sold to Break-Even ?
Ans : a) 6,000 motors, b) 8,500 motors , c) 9,600 motors.
3. The following data relate to RT manufacturing Company :
Rs.
Sales 5,00,000
Expenses : Variable 3,50,000
Fixed 2,50,000 6,00,000
Loss 1,00,000
Assume variable expenses will remain at the same percentage of sales.
i) If fixed expenses increase by Rs 1,00,000, what sales will cause the firm to Break-Even ?
ii) With the proposed increase in fixed expenses, what sales will result in a net profit of Rs.50,000?
Ans : i) Rs. 11,66,667 ii) Rs. 13,33,334
4. Rainbow Ltd. Sold goods for Rs. 30,00,000 in a year. In that year the variable costs were Rs.
6,00,000 and fixed costs were Rs. 8,00,000.
Find out :
i) P/V Ratio
ii) Margin of Safety (M/S)
iii) Break-Even Sales
iv) BES, if selling price was reduced by 10% and fixed costs were increased by Rs. 1,00,000.
Ans : i) 80%, ii) Rs. 20,00,000 iii) Rs. 10,00,000 iv) New P/V Ratio = 77.77%, BES = Rs. 11,57,143
5. By making & selling 7,000 units of its product, a company would lose Rs. 10,000 ; whereas in the
case of 9,000 units it would make a profit of Rs. 10,000 instead.
Calculate :
i) The amount of Fixed Expenses.
ii) The no. of units to Break-Even.
iii)The Profit or Loss for 10,000 units.
iv) The no. of units to earn a profit of Rs. 40,000.
The selling price can be assumed at Rs. 100.

Ans : i) Rs. 80,000 ii) 8,000 units iii) Rs. 20,000 , iv) 12,000 units
6. From the following data ,calculate :
i) P/V Ratio
ii) Profit, when sales are Rs.30,000 ; and
iii) New Break-Even point, if selling price is reduced by 20%. Rs.
Fixed Expenses 6,000
Break-Even Point 15,000
Ans : i) 40% , ii) Rs. 6,000 , iii) 300 units.
7. From the following data draw a Break-Even Chart :
i) Fixed Costs are Rs. 6,000 in a Year.
ii) Variable Costs are Re.0.80 per unit.
iii) Sales revenue at standard selling price is Rs. 12,000 at 6,000 units sold. Indicate on the graph the BEP
and also indicate the amount of profit to be earned if 8,000 units are sold at the standard selling price.
8. By making & selling 7,000 units of its product, a company would lose Rs. 10,000 ; whereas in the case of
9,000 units it would make a profit of Rs. 10,000 instead.
Calculate :
i) The amount of Fixed Expenses.
ii) The no. of units to Break-Even.
iii)The Profit or Loss for 10,000 units.
iv) The no. of units to earn a profit of Rs. 40,000.
The selling price can be assumed at Rs. 80.
Ans : i) Rs. 80,000 ii) 8,000 units iii) Rs. 20,000 , iv) 12,000 units
9. AB Ltd. Furnishes you with the following cost and price structure for its articles X on the basis of
production of 50,000 units:
Selling Price Rs. 300/unit.
Variable Costs Rs. 150/unit.
Fixed Costs Rs. 50/unit.
Profit Rs. 100/unit.
Owing to heavy competition in the market, the company decided to reduce the price of the article but at the
same time desires that its net profit is not disturbed.
You are asked to state the level of output to earn the same amount of profit if the price is reduced by (a) 5%
and (b) 10%. Ans : a) 55,556 units , b) 62,500 units
10.The following figures relates to a company manufacturing a varied range of products :
Total Sales Total Costs.
Rs. Rs.
st
Year ended 31 December 2008 22,00,000 19,00,000
Year ended 31st December 2009 24,00,000 20,00,000
Assuming stability in prices, with variable costs carefully controlled to reflect the predetermined
relationships and an unvarying figure for fixed costs, calculate
a) Fixed Costs, b) The Profit/Volume Ratio, to reflect the rates of growth for profit & sales.
c) Fixed costs percentage to sales. d) Margin of Safety for the year 2008 and 2009.
Ans : a) Rs. 8,00,000 b) 50%, c) 36.36% & 33.33% , d) Rs. 6,00,000 & Rs. 8,00,000
11 . The following data are obtained from the records of a factory :
Sales 5,000 units @ Rs. 40
Material consumed Rs. 60,000
Labor Charges Rs. 40,000
Variable Overhead Rs. 20,000
Fixed Overhead Rs. 25,000. Calculate
a) Break Even Point ( sales)
b) Sales needed to earn a profit @ 25% on sales.
c) If it is proposed to reduce selling price by 10%, find the sales to obtain present profit.

Ans : a) BES = Rs. 62,500 , P/V Ratio = 40%, b) Rs. 1,87,500, c) Rs. 2,40,000
12 . The sales and profit during the two periods are given as follows :
Year Sales(in Rs.) Profit (in Rs.)

2006 20,00,000 2,00,000

2007 30,00,000 4,00,000
Calculate:
i) P/V Ratio. ii) Fixed Costs iii) BEP iv) Sales to earn a profit of Rs. 5,00,000
v)Margin of Safety at a sales of Rs. 4,50,000 vi) Profit when sales is Rs. 40,00,000 vii) Variable cost in
2007.
Ans : i) 20%, ii) Rs. 2,00,000, iii)Rs. 10,00,000, iv) Rs. 35,00,000, v) Rs. 22,50,000, vi) Rs. 6,00,000, vii) Rs. 24,00,000

13 . The following information is obtained from the records of Sylvania Ltd.

Sales Rs. 16,00,000
Variable Costs Rs. 8,00,000
Fixed Costs Rs. 3,00,000

You are required to

a) Find the P/V ratio, BEP and Margin of Safety.
b) Calculate the effect of the following on the above :
i) 10% increase in fixed cost
ii) 20% increase in fixed cost
iii) 10% increase in variable cost
iv) 10% decrease in variable cost.

Ans : a) P/V Ratio = 50%, BES = Rs. 6,00,000, M/S = Rs. 10,00,000

14. The following data relates to ABC & Co. for 2011.
Fixed Factory Overhead : Rs. 30,000
Fixed Selling Overhead : Rs. 6,000
Variable Manufacturing cost /unit : Rs. 6
Variable Selling Cost /unit : Rs. 1.50
Selling Cost /unit : Rs. 12.
Calculate :
i) BEP in terms of units and BE sales in terms of Rupees.
ii) No. of units that need to be sold to make a profit Rs. 45,000.

Ans : i) BEP = 8,000 units, BES = Rs. 96,000 ii) 18,000 units.
15. The following data are obtained from the records of factory:
Sales : Rs. 2,00,000
Raw Materials Consumed : Rs. 60,000
Labour Charges: Rs. 40,000
Variable O/H : Rs. 20,000
Fixed O/H : Rs. 25,000
Calculate : (a) BEP sales in terms of Rupee value.

Ans : Rs. 62,500

16 . A company has extra capacity that can be used to produce a sophisticated fixture which it has been
buying for Rs. 900 each. If the company makes the fixtures, it will incur materials cost of Rs. 300 per unit,
labor costs of Rs. 250 per unit and variable overhead costs of Rs. 100 per unit. The annual fixed costs
associated with the unused capacity is Rs. 10,00,000. Demand over the next year is estimated at 5,000 units.
Would it be profitable for the company to make the fixtures ?

Ans : Total variable cost = 5,000 x Rs. 650 = Rs. 32,50,000. Total Cost for Making = (10,00,000 +
32,50,000) = Rs. 42,50,000. Total Costs for Buy : 10,00,000 + (5,000 x 900) = Rs. 55,00,000.

17 . There are three alternatives available to meet the demand of a particular product. They are as follows :
a) Manufacturing the product by using process A
b) Manufacturing the product by using process B
c) Buying the product.
The details are as given in the following table :

Cost Elements Manufacturing by Process A Manufacturing by process B Buy

Fixed Costs/Year 5,00,000 6,00,000 -
Variable Cost/Unit 175 150 -
Purchase Price/unit - - 125

The annual demand of the product is 8,000 units. Should the company make the product using process A or
process B or buy it ?

Ans : Total costs by Process A : 5,00,000 + ( 8,000 x 175 ) = Rs. 19,00,000.

Total costs by Process B : 6,00,000 + ( 8,000 x 150 ) = Rs. 18,00,000.
Total costs of Buy : 125 x 8,000 = Rs. 10,00,000.