Chapter 9

CoST VOLUME PROFIT AND

BREAK-EVEN ANALYSIS
Learning Objectives
After studying this chapter, you should be able to
understand:
Cost-volume-profit analysis-meaning, objectives, assumptions and techniques or elements.
Contribution, marginal cost equation and profit volume ratio.
Break-even analysis and computation
of break even point.
Margin of safety and angle of incidence.
Cash break-even point and
composite break-even point.
Graphic method or break-even chart.
Advantages and limitations of cost-volume-profit analysis.

INTRODUCTION
We have
already studied the behaviour of costs in relation to changes in the volume of output.
An
analytical study of the behaviour of costs in relation to the changes in the volume of
reveals that there are some items of cost which output
tend to vary directly with the volume of
whereas, there are others which remain unaffected output,
by variations in the volume of output. Profit
earning is the main aim of almost every business enterprise and it is a barometer for
measuring
efficiency of the firm's performance. One of the most important factors infuencing the quantum of
profits is the volume of output. Cost-volume-profit analysis is a method for
costs and profits to the volume of business.
examining relationship o

MEANING AND OBJECTIVES OF COST-VOLUME-PROFIT (CVP) ANALYSIS

Cost-Volume-Profit analysis is a technique for studying the relationship between cost, volume
and profit. Profits of an undertaking depend upon a large number of factors. But the most important
of these factors are the cost of
manufacture, volume of sales and the selling prices of the products. In
the words of Herman C.
Heiser, "the most significant single factor in profit planning of the average
usiness is the relationship between the volume of business, costs and profits". The CVP relationship
1s an
important tool used for the profit planning of a business.
The three factors of CVP analysis i.e., costs, volume and profit are interconnected and dependent
 volomeProfit and Break-Even Analysis
9.2 Cost Volume Profit and Break-Even
nalysis bution Margin Concept 9.3
on
oneanother. For example, profit depends upon sales, selling price to a large extent depends Contribut
Marginal Cost Equation
cost and oost depends upon volume of production as it is only the variable cost that varies dirupy 2
with production, whereas fixed cost remains fixed regardless of the volume produced. In liretly Profit-Volume (P/V or C/S) Ratio
volume-profit analysis an attempt is made to analyse the relationship between variations in cost Break-Even Analysis
variations in volume.
with
5. Margin of Safety
The cost-volume-profit relationship is of immense utility to management as it assists in
praf
rofit 6Profit-VolumeGraph
planning cost control and decision making. Cost-volume-profit analysis can be used to answe
questions such as:
cONTRIBUTION MARGIN CONCEPT
(a) How much sales should be made to avoid losses ?
eihution is the difference between sales and
bHow much should be thesales toeana desired profit ? variable cost or
defined as the excess of selling price over marginal cost of sales. It may
variable cost per unit. Contribution is also
(cWhat will be the effect of change in prices, costs and volume on profits i
ihtion
Coni
Margin or Gross Margin. Contribution being the known
of sales over variable cost is the
excess
dWhich product orproduct mix is most profitable ? untthatis contributed towards fixed expenses and profit.
(e Should we manufacture or buy some product or component ? and so on.
the selling price of a product 1s 20/- per unit and its variable cost is 15/- unit,
per
The main objectives of cost-volume-profit analysis are given below: hution per unit is 5/- (i.e. 7 20-15). Further, let say that the fixed expenses 30.000
contributi us and are
) The CVP analysis may be used in determining the break-even-point. alnumber of units sold is 8,000. This means that the total contribution is 8000x 5 or 7 40,000
) Fixation of selling kih is not sufficient even to meet the fixed expenses and the result is a loss of 7 10,000 (50,000-
prices.
1) Selecting the suitable product/sales mix 0. In case, the output is 10,000 units, then total contribution of ? 50,00 equals the fixed cost,
g000)
nd no amount is lett for profit. The profit can be earned only when the amount of contribution
(v) Profit planning and maintaining a desired level
of profit. eceds the fixed costs. Hence, any output beyond 10,000 units, will give
v)
Determining the optimum level of activity. the
some profit
eg.
at a level of
(vi) Evaluating the pertormanc. utput of 15,000 units,
50,00, thus making a profit of
total contribution
25,000.
is 15,000x 5 = 7 75,000 while the fixed costs remain
v aking many other decisions invoiving alternative choices such as make or buy decision,
accept or reject decisions etc. Contribution can be represented as
Contribution = Sales- Variable (Marginal) Cost
ASSUMPTIONS OF CVP ANALYSIS or Contribution (per unit) = Selling Price-Variable (or marginal) cost per unit
Cost-volunme-profit anaiysis is based upon a number of assumptions such as: or Contribution =
Fixed Costs + Profit (-Loss)
1. All elements of cost can be
segregated into fixed and variable components.
Variable cost remains constant
per unit of output irrespective of the level of output and
IADVANTAGES OF CONTRIBUTION
thus fiuctuates directly in
proportion to changes in the volume of output. he concept of contribution is a valuable aid to management in making managerial decisions. A
3. xed costs remain unchanged or constant for the entire volume of
production.
TOductivity and etficiency of operations remain constant at various levels of
wDenefits resulting from the concept of contribution margin given below: are
1. It
5. The operatiOn
selling price per unit remains unchanged or constant at all levels of activity.
helps the management in the fixation of selling
prices
2. It assists in
.The voume of
production or output is the only factor which influences the costs. determining the break-even pont.
.1eTe 5 psmanagement in the selection of a suitable product mix for protit mauimisation.
no
change in the quantity of opening and closing inventories. It is assumed tnat ue * n e l p s in choosing from among alternative methods of production ; the method whicn
umber of units
produced equal the number of units sold.
. Te sales mix remains constant at
all levels of ves highest contribution per limiting factor is adopted. product or a
. Total costs and total activity in case of multi product irnt he management in deciding whether to purchase or manufacture a
revenues are linear functions P
of output. Component.
6. tIt helps in taking a decision as regards to adding a new product in the market.
TECHNIQUES OR ELEMENTS OF
COST-VOLUME-PROFIT ANALYSIS
The following techniques,
cost-volume-profit analysis:
called the elements of CVP
analysis, are
employed in the y |MARGINAL coST EQUATION
e of convenience, a marginal cost equation can be derived as tolows
S-Variable cost Contribution =
 H i
Prom
V o l u m e
ost
9.4 Cost Volume Profit and Break-Even P/V Ratio=ontribution 9.5
Analysis
Contribution
Sales
Sales V'ariablecost +
Sales-
Or,
Sales V'ariable cost + Fixed Cost + Profit/Loss Contribution
= Sa
Variable Cost Fixed Cost+ Profit, P/V
Sales-Variable cost = Fixed cost Profit/1Loss Since
ratio can
or, also be expressed
S-V-F: Sales- Variable cost, S-V
P / V R a t i o =a l e s - V a r i a h
-1.e
Sales S
where S' stands for Sales Fixed Cost + Profit
stands for Variable cost or, P/VRatio = F+P
F stands for Fixed cost Sales S
aChange
in
P' stands for Profit/Loss
P/VRatio =
profit or
n g ein profito Contribution
or,
The marginal cost equation is very usetul in the sense that if any three factors out of the four are
Change in Sales
knowr the fourth can easily be found out
ratio can also be shown
in the form of
ILLUSTRATION 1. Determine the amount of variable cost from the following particulars This percentage by
fa product is 7 20 and variable cost is ? 15 per unit then multipiyving by 100. Thrs, ii selling
P/VRatio =- 20-15
20
100x100=25 20
Saies 1,50,000
Fixed Cost 30,000 The P/V ratio, which establishes the relationship between contrbution and sales s oi va
Protit 40,000 for studying the rofitability of operations of a business. It reveais the efect on proit of
importance
nges in the volume. In the above example, tor every ? 100 sales, Contributicn oi ? 3 s made
sOLUTION: owards meeting the fixed expenses and then the profit comparisonfor P/V aties made cam be to
The marginal cost equation is : findout which product, department processismore profitable. Thus,
Higher the P/V
or will be zato. nore
Sales - Variable cost = Fixed Cost Profit/Loss the profit and lower
the P/V ratio. lesser will be the management aims profit. every at
increasing the./V ratio.
1,50,000-VC.= 30,000 40,000
Variable cost= 1,50,000-70,000 ={ 80,000. The ratio can be increased by increasing the contribution. This can be done by
ILLUSTRATION 2. From the following information find out the amount of profit eamed (i) Increasing the selling price per unit
during the year using the marginal costing technique:
() Reducing the variable or marginal cost.
tor which theP/V ratio is
mixture and selling more profitable products
Fixed Cost 2,50,000 (11) Changing the sales
10 perunit
Variabie cost
15 per unit
higher. point, the pront at a gven
Selling price calculate the break-even
he concept of P/V ratio is also useful to and the voiume of
sales
75,000 units desired) prorit
Output ievel to earn a given (or
Oume of sales, the sales volume required is reduced by a specinet percentage
to maintain the present profits if the selling price
E s
sOLUTION ne tormula for the sales volumes required to earn a given prutt
- V =F+P
Contribution
Sales 75,000x 15 =?11,25,000 P/V Ratio=
Sales
Variabie Cost = 75,000 xA0 =77,50,000 Fixed Cost+ Profit
Fixed Cost =72,50,000 or, P/V Ratio =
Profit (P) =? Sales
11,25,000-7,50,000 = 2,50,000 +P Fixed Cost + Proñt F+P
PN rano
3,75,00 =2,50,000+ P or, Sales = P/V ratio
P =3,75,000-2,50.000
Profit = 1,25,000. ILLUSTRATION 3. L,00,000
10,000
70%
Sales
PROFITNOLUME RATIO (PAV RATIO OR C/S RATIO) Profit
O000
The Profit/volume ratio, which is also called the 'contribution ratio' or "mnarginal rato,
resses
Variable cost Volune to eam a
Proit of
the relation of contribution to sales and can be expressed as under: Fixed Cost (ii) Sales
ut) P/V ratio, (i)
 9.7
Present Profits
9.6 Cost Volume Profit and Break-Even Analysis Sales for Earning
Future
Present Profit =
Contribution Fixed Cost
-
SOLUTION:
800-400=7 400
Sales 1,00,000 iove to find out the volume of Sales to earn a profit of T 400.
Variable Cost 70% Fixed Cost+Profit
70
Sales
=
x1,00,000 =
R70,000. P/V ratio
100
Sales Variable Cost 400+400 800
) x100
Sales
1,00,000-70,000 100 30% 335 3
1,00,000 800 x3 2,400
(i) Contributiorn =Fixed Cost+ Profit 1
Ol 30,000 = Fixed Cost +10,000
Fixed Cost = 30,000-104000 =R 20,000 Sales in units 2,400267 units.
9
(ii) Sales Fixed Cost+ Profit
P/V Ratio
The sales turnover and
60,000x 100 LLUSTRATION 5. profit during two years were as follows:
R 2,00,000
Year Sales Profit
OProof:
Sales 2,00,000 2019 1,40,000 15,000
Variable Cost (70%)
Contribution 140,000 2020 1,60,000 20,000
60,000
Fixed Cost
Profit 20.000 You are required to calculate:
40000 (i) P/V ratio
ILLUSTRATION 4 Sale of a product amounts to 200 units per month at R 10 per unit. Fixed
overhead cost is 400 per month and variable cost is R 6 unit. There is
(ii) Sales required to earn a profit of 40,000.
per a
propOsal to reduce prices
by 10 per cent. Calculate present and future P/V ratio. How many units must he sold to earn the
(ii) Profit when sales are 1,20,000.
present total profits ?
sOLUTION sOLUTION
Present P/V Ratio
() P/V Ratio Change in Profitx100
Sales 200 x 10 =2,000 Change in Sales
Variable Cost 200 x 6 = 7 1,200
Contribution = Sales-Variable Cost ,0x
20,000
100 25%
2,000-1,200 = 7 800
i) Sales required to earm a profit of 40,000
P/VRatio ontribution x 100
Sales P/V Ratio =Fixed Cost+Profit
800 Sales
00x100 = 40%
2000 25 F+15,000
PVRatio after reducing price by 10% 100 1,40,000
Present Price per unit
Or 1,40,000 x 25 = F+ 15,000
100
Less: Reducing 10% 35,000-15,000 = F
Future Price per unit
Fixed Cost =720,000
Variable Cost per unit F+P
or Desired Sales
Contribution per unit P/V ratio
P/V ratio = x100x100=33% 20,000+40,000
100
 Cast VoReP
Cost Vohme
Profit and
Brenk-fven
Ana
9.8 Break-even point can be stated in the form of an equation
6),0X00 x 100 2, 40,000 Sales revenueat break-even point
= Fixed Costs + Variable Costs
25
(i) Profit when sales are 1,20,000
F+T
COMPUTATION OF THE BREAK-EVEN POINT
P/V ratio be computed by the following methods:
F+ P
Thebreak-even point can
SxP/V ratio
-
() The Aigebraic Formula Method
20,000+ P
1.0,0 100 (i) Graphic or Chart Method.
30,000 20,000 P
THE BREAK-EVEN POINT
Profit 30,000-20,00 = 10,000 ALGEBRAIC FORMULA METHOD FOR COMPUTING
The break-even point can be cornputed in terms of :
BREAK-EVEN ANALYSIS (a) Units of sales volume.
analysis and the to
The stud o aast-volume profit analvsis is often reterred to as brcak-even (b) Budget total or in terms of money value.
is the most widelh
terms a e usd interchangeably by many. This is so, because break-even analysis
known trm ot ast-volume-protit analvsis. The term "break-even analysis" is used in two senses- (c) As a percentage of estimated capacity
narrow sense and braad sense. In it broad sense, break-even analysis refers to the study ot (a) Break-Even Point in Units
at which the total
relationship between costs, volume and profit at difterent levels of sales or production. In its narrow loss, it is that level of output
As the break-even point is the point Itofcarn profit
no no
formula :
sense. t reters to a technique of determining that level of operations where total revenues equal total contribution equals the total fixed be calculated with the heip of following
costs,
expenss, ix. the point of no profit, no ios.
Fixed Cost Fixed Costt
ASSUMPTONS OF BREAK-EVEN ANALYSsis Break-Even Point Selling Price per unit- Variable
Cost per unit Contribution per unit
The breakeven analysis is based upon the toliowing assumptions: terms of budget-total or money value
(b) Break-even Point in
Al eiements of cost, i4. production, administration and selling and distribution can be
At break-even point :
egregated into tixed and variabie components.
Total Sales = Total Fixed Cost Total Variable Cost
(i Variabie cost remains constant per unit of output irrespective of the level of output and
or S F+ VN
thus fiuctuates directiy in proportion to changes in the volume of output. Variabie cost)
Fixed Cost and V
=
(where S =
Sales, F =
( tixed cost remains constant at all voiumes of output.
or S-V= F
2 0 e l n g prie per unit remains unchanged or constant at all levels of output.
(Divicding both sides by S-V)
(7) Volume ot production is tihe only factor that influences cost. or
There will be no hange in the general
7T)
price-level
(Dii) Tnere is only one product or in case ofmulti-products, the sales mix remains unchanged Or 1s-V
here b synicronisation between production and sales.
(ZE halitiplying both sides by S)
SxI
BREAK EVEN POINT
a saks
Hence, break evet s Sules - Vaniable Cost
Fived Cast
Sales = FixedCost k Sales
The break-even pont may be defined as that point of sales volume at which total revenue 1s ey. Contribution
to total cost. If is a point of no profit, no loss. A business is said to break-even when its total saks &'t
B.E.P.
Fixed Cot nrnputt =
P/V ratio
equal to its total costs. The break-even point resers to that level of output which evenly bredas ta Wth the u f PN Rute, P/V ratio Sales
costs and revenues and hence the name. At this point, contribution, it, sales minus margial w
equals the fixed costs and hence thus point is often called as 'Critical or Equilibrium Pomf
Point Break*vea
Point as a percentage otestimated capaity
Balancing Point or no profit, sno los. lf production/sales is increased beyond this level. twets Beakevea point can also be cvaputi as a percentage ot the estimated sales or capacity by
be profit to the orgarisation and if it is decsease from this level, there shall be loss to the ugarusid
dividang the
sis. For exanple, if a tirm has an estimated capacity of
break even sles by the capucaty
 Va St per unit
Total Fixed Cost =7 12+ 3-715
9.10 Cost Volume Profit and Break-Even Analysis 60,000+ 12,000 72500
1,0,000 units of products and its break-even
3.E.P.72,000
point is reached at 50,000 units, then the break r e n 24-15,00 uníts
pont is at 50% of capacity (1,00,000/50,000). If information as to total contribution at full capacitly is AE.P. (in sales
values)
tber of units that must be 8,000x 24 7 1,92,00
=
available, the break-even
point as a
percentage of estimated capacity can be found as under i t Numberof
sold to earn
profit of 790900
B.E.P (as % age of Fixed Cost Fixed Cost +Profit
capacity) =
;
Total Contribution Selling Price per unit- Variable Cost
per unit
in
LLUSTRATION 6. From the tollowing infornmation, calculate the break-even point in units and
sales vaiue :
72,000+90,0001,62,0 -18,000 urts
24-15 9
Output
1STRATION 8.
LLUS From the
following data, you are required to calcuiate
=3,000 units ial P/V ratio
Selling price per unit 30
Variabie cost per unit lBreak-even sales with the help of P/V ratio.
20
Total fixed cost = R 20,000 d Sales required to earn a profit of 7 4,50,000
Fixed Expenses
sOLUTION Variable Cost per unit
Fixed Cost Direct Material
Break even point (in units) 3
Selling Price per unit- Variable Cost Direct Labour
Direct Overheads
=72
20,000 20,000 2,000 units. Selling Price per unit
=
100% of Drect Labour
30-20 10 712
Fixed Cost x Sales SOLUTION:
Break-even point (in Saies Value)
Sales-Variable Cost
Fixed Cost =20,000 (given) selling Price per unit
Saies
=3,000 x 30 =R90,000 Less: Variable Cost per unit:
Variabie Cost = 3,000x 20 R60,000 Direct Material
Direct Labour
Hence, B.EP. (in Saies Vaiue) 20,000x 90,000
Direct Overheads
90,000 60,000
20,0000,000z
30,000
60,000. Contribution per unit
Otherwise, as the BEP. is 2,000 units, break-even sales would be : (a) PIV ratio Contribution x100
Sales
2,000x30 =760,000
ILLUSTRATION 7. From the foliowing particulars, calculate: 100
12
25%
i) Breakeven point in terms of sales value and in units.
(b) Break-even Sales FixedExpenses
(ii) Number of units that must be sold to earn a P/V ratio
profit of 90,000.
90,000 90,000 x10_73, 0,000.
25 5
Fixed Factory Overheads Cost
60,000 100
Fixed Seling Overheads Cost
12,000 () Sales required to earn a profit of R4,50,000
Variable Manufacturing Cost per unit Fixed Expenses+Desired Proät
12
Variabie Selling Cost per unit
P/V ratio
Selling Price per unit
24
90,000+4,50,000_5,40,000
sOLUTION: 25% 25
100
(i) Break-even pol
Fixed Cost 5,40,000 X1 21,60,000
Selling Price per unit- Variable Cost per unt
 Volume Profit and Break-Even Analysis
9.12 Cost Volume Profit and Break-Even Anali 9.1
ILLUSTRATION 9. From the following data, you are required to calculate break even point and LLUSTRATION 10. From the following particulars, find out the break even-point :
net sales value at this point.
Variable Cost per unit 15
Direct material cost per unit 10
Fixed Expenses 54,000
Direct labour cost per unit Selling Price per unit 20
Fixed overhead 50,000
Variable overheads@ 60% on direct labour What should be the selling price per unit, if the break-even point should be brought down to
Selling price per unit 25 6.000 units?
Trade discount
SOLUTION:
If sales are 10% and 25% above the break even volume, determine the net profits. Contribution per unit = Selling Price-Variable cost per unit
=20-15 =75
sOLUTION (a) B.E.P, Fixed Expenses
Contribution per unit
Selling price per unit 5
Less: Trade discount (254/100)
1 54,00 10,800 units
5
Net seling price per unit 24 be brought down to 6000
(6) should be the selling price per unit, if the break-even-point should
Less: Variable cost per unit What
units:
Direct material 10
Direct labour Fixed Expenses
B.E.P.
Variable overheads (560/100) Contribution per unit
3
Contribution per unit 54,000
Or, 6,000
Break-even point (in units) Fixed Cost Contribution per u
Contribution Per Unit
Or, Contribution per unit = 54,0009
6,000
8,333 units Contribution = S.P-VC.
6
9 SP-15
Break even Point (in sales value) = Fixed Cost Or,
PV Ratio Selling Price =24
costs to
Contribution The fixed costs amount to 50,000 and the percentage of variable
P/VRatio =- X 100 ILLUSTRATION 11. find out the break-even point and the
Sales Sales is given to be 66/,%. If 100% capacity sales are? 3,00,000,
Determine profit at 80% capacity.
24x 100 25% percentage sales when it occurred.
SOLUTION:
Hence, B.E.P. (in sales value) 50,000
25%
50,00025 200
ie,
=2,00,000 Percentage of Variable Cost to Sales is 66% 3
Profit when sales are 10% above the break even volume 200 100
to Sales is 100-
Percentage of Contribution
Sales 2,00,000+ 10% of2,00,000=T2,20,000
Contribution = Sales x P/V Ratio = 2,20,000 x 25/100 = 7 55, 000 Contribution 100
P/V ratio Sales
Contribution =Fixed Cost+ Profit
55,000 =50,000+Profit 100 Xx 100 =
33%
Profit = 5,000 3 10
Profit when sales are 25% above the break even volume Fixed Cost
Sales =2,00.000+ 25% of2,00,000 =7 2,50,000 Break-even Salesp/V Ratio
Contribution = 2,50,000 x 25/100 = R62,500 50,00050,0 300 = R1,50,000.
Contribution = Fixed Cost+Profit 100
62,500 50,000+ Profit
33%
Profit 12,500
 Cost Volume Profit
and Break-Even Analyn Volume
fit aand
Profit

Break-Even Analysis
9.1
9.14 R 3,00,000
100% Capacity
Sales =
valytn Cost
P/V Ratio
Change in Contribution
1,50,00100 = 50% capacity. 100
a Change in Sales
3,00,000
ocrurs
B.E.I'.
Hence,
80% Capacity
=- 20,000 100 =10%
Profit at Sales a r e
3,00,000 2,00,000
At 100%Capacity 80
2,40,000
80%CapacitySales
3,00,000 x 100 Contribution ofPeriodI =7,00,000x-7 70.co0
100
001
Contribution at 80o capacity =2,40,000 x
3 100 Loss of period I (given)
=7 10,000
Total = 780,000
= 80,000 n Fixed Cost
Contribution =Fixed Cost + Profit/Loss
Fixed Expenses =50.000
Fixed Cost = Contribution + Loss/Profit
Profit at 80% capacity =30,000
(i) Break-Even Point
Fixed Cost
LLUSTRATION 12. From the tolowing intormation, ascertain by how misc P/V Ratio
to break-even: t Sales
must be increased by the company 80,000 80,00010x100_
10 8,00,000
100
Sales Break- Even Sales
Fixed Cost 3,00.000
Number of units to break-even
Variable Cost 150.00 Selling Price per unit
2,00,000
8,00,000-8,000
100
units.
SOLUTION
Cost x Sales (i) Number of units required to earn a profit of F40,000.
Break-even point xed
Break-even pomtSales- Variable Cost Fixed Cost +Desired Profit
P/V Ratio
1,50,000 x 3,00,000
3,00,000-2,00,000 80,000+40,000
1,50,000 x 3,00,000=74,50,000. 10
1,00,000 1,20,000x100_z12,00,000
10
Hence, Sales to be increased by the company to break-even are =
R 4,50,000-3,00,000 =
1,50,000.
information isas
loss of R 40,000 and reievant
ILLUSTRATION 13. Calculate : LLOSRATION 14. A company is making a
follows: Fixed costs 1,00,00
() The amount of fixed Sales1,20,000; Variable Costs 7 60,000;
expenses. sales volume. wha
be made the sales price or by increas1ng
good either by increasing
i) The number of units to break-even. Can
are Break even sales if
ii) The number of units to earn a
profit of R 40,000. (a) present sales level is maintained and the selling price is increased
The selling price
per unit can be assumed at 100. What would b-
loss o present selling price is maintained andthe sales voume is increased.
ne company sold in two successive
periods 7,000 units and 9,000 units and has uarred
a
sales if a profit of 7 1,00,000 is required ?
10,000 and earned ? 10,000 as
profit respectively. SOLUTION:
SOLUTION: a) Break- sales = Variable Cost + Fixed Cost = 760,000 L00,000=RL60,000.
(b) Sales
Periodl
1,20,000
PeriodI Variable cost =R 60,000
Sales
9 0 0 0
Contribution =
T1,20,000-60,000-R oU,U
7,00,000
Profit/Loss ( P/V Ratio=Contribution 106
GR10,000 100
us 1or an additional which
has
Sales
sales of 7 2,00,000 there of R
20,000
o0,000
wiped o tne joss
or R 10,000 of period I and earned
is an additional contrD 1 ,20,000 ^ T00=50%
a nrofit nf 7 1000M in DErM
 Break-Even
B r e a k -
Analysis
Cost and
roftand
9.16 Volume Proft and Profit
Fixed Costs Break-Even Analreie V o l u
coMPOSITEBRE
m e
FAK-EVEN POINT (MULTIPRODUCT 9.17
Break-Even Sales P/V Ratio
alysis
we have
SITUATION
dealt with break-even point of firms
break-even
the composite brea point for a firm producing single
1,00,000x 100 = 7 2,00,000 osite
producing several products, product. We
S ot a r
can als
50 akulatet
as below
Desired sales to earn a profit ofR1,00,000: ven Point (in Sales value)
C o m p o s i t eB r e a k - E v e n
Total Fixed Cost
Desired Sales Fixed
= Cost+ Desired Profit Composite P/V Ratio
P/V Ratio
Total Contribution
P/V Ratio
1,00,000+1,00,000
and,
Composite
Total Sales
50%
2,00,000 XI00z 4,00,000 N 16.
LLUSTRATION 16. From
From the following intormation of a company
50
compute:
producing three products,
to
required
are
Ou
P/V Ratio, and
CASH BREAK-EVEN POINT (a)
Composite
Break-Even Point:
In the present competitive world of business, it
may be difficult for new industrial hnits (b)Composite
achieve the break-even point in the initial years.
Inus, the concept of cash break-even Doint Product
Sales Revenue Variable Cost
emerged. The cash break-even point may be defined as that point of sales volume 20,000 10,000
at which
revenue is equal to total cash cost. At this point, cash 40,000 14,000
contribution (which is calculated after making
adjustment for variable portion of depreciation, etc.) equals the cash fixed 60,000 36,000
excluding depreciation and deferred expenses. This point enables the
cost, ie. fived. cost
level of activity below which the liquidity management to determine the the
position of the firm would be adversely affected. Fixed costs:? 50,000.
Thus, cash break-even point may be calculated as below
SOLUTION
Cash Fixed Cost P/V Ratio
Cash Break-Even Point (in Units)= Sales Revenue
Variable Cost Contribution
Cash Contribution per unit Product
( (S-V)
ILLUSTRATION 15. From the following information, calculate the cash Break-Even Point. 50%
10,000 10,000
20,000 26,000
657%
Selling Price per unit 14,000 40%
40,000
Variable cost per unit
40
36,000 24,000
Z 60,000 50%
30 60,000
Depreciation included in above per unit Total 1,20,000
60,000
Fixed cost Total Contribution 100
1,00,000
Depreciation included in fixed cost 25,000
(a) Composite P/V Ratio
Total Sales
60,000x 100 = 50o
sOLUTION: 1,20,000
Total Fixed Costs
Cash Fixed Cost Composite P/V Ratio
Cash =R1,00,000-25,000= 75,000 0) Composite Break-Even Point (in sale vale
contribution per unit
=T40-(30-5)=715 50,000 1,00,000
Cash Break-Even Point Cash Fixed Cost 50%
Cash Contribution CHART
per unit BREAK-EVEN
ANALYSIS
OR graphical
75,000
1 5 5 , 0 0 units GRAPHIC METHOD OF BREAK-EVEN
A
break-even
chart is
view

a
of the
Cash Break-Even Point in graphically. a pictorial
Sales Value =7 5000 x 40
The break-even also be
computed
chart
Portrays
2,00,000 can
epresentation of mar nt
break-even
The
g l n a l
costing.
 .
Cost and Revenue R '000)

Cost and Revenue in '000 of Rs.

J
e
Cost and Revenue in '000 of Rs.
9.22 Cost Volume Profit and
Break-Even Analysis
and Profit
4. A break-even chart does not suggest any achon or remediess to the mana
Break-Even Analysis st

V o l u m e
increasing
the elling price
9.23
management decisions. management a a lml of 2. By
fixed
reducing the
cost
5. More often, a break-even chart presents only a static view of
of tho 3. By
consideration. the the variable cost
problem under 4 Byreducing
5 By substituting unprofita products with profitable products
MARGIN OF SAFETY
The excess of actual or 6
Ruincreasing contribution by changing the sales mix or by dropping unprofitable products.
It is the
budgeted sales over the break-even sales is known
difference between actual sales minus the sales at as the
by which sales revenue can fall before a loss is break-even point. It ANGLE OF INCIDENCE
los, sales beyond the break-even
point
incurred. As at
break-even pointrepresent
thero :
uSafety,
mount
even
point will give some profit. represent margin of
satety because any sales ahau The angle of incidence is the angle between the sales line and the total cost line formed at the
Thus, above Ot no the break even point where the sales line and the total cost line intersect each other. The angle of
of a business. A large angle of incidence indicates a
incidence indicates the profit earning capacity
Margin of Safety =Total Sales- Sales hich rate of profit and, on the other hand, a small angle of incidence indicates a low rate of profit.
at Break-Even Point.
Sav, actual present sales Usually, the angle of incidence and margin of safety are considered together to indicate the
safety is equal to 1,00,000, i.e, 5,00,000 and the break-even sales
are
Soundness of a business. A large angle of incidence with a high margin of safety indicates the most
Margin of Safety can also be5,00,000-400,000. are4,00,000, then mar in favourable position of a business.
at 60
per oent of the expressed in percentage. For
expected sales; then it has a example, if company can a
previous example, margin of margin of
safety of breakeven PROFIT-VOLUME GRAPH
safety in (100-60) 40 per cent.
percentage can be calculated as,00,000 In the
Margin of safety calculated in as
x100 20%. =
Profit-volume graph is a pictorial representation of the profit-voume relationship. This graph
showsprofit arnd loss at different volumes of sales. It is said to be a simpliñied form of break-even
expressed as: percentage is also known as
Margin of Safety chart as it clearly represents the relationship of profit to volume of sales. A profit-volume graph also
Ratio and be from any data relating to a business from
Called the P/V graph or profit graph can be constructed
can
MS. Ratio = MS.-x100 graph may be preferred to a break-even
Sales which a break-even chart can be drawn. The profit-voume
read at different levels of activity. But the basic
nart because profits or losses can be directly with the
change in the level of
Actual Sales-Sales tation of a P/V graph is that is does not show
how costs vary
at B.E.P.
graph should both be drawn together to
y For this reason, break-even chart profit-volume
and
Margin of safety can also Sales x 100
be calculated with the derive the maximum advantage of botn.
help of the following involves the following steps:
Margin of formula: ne construction of profit-volume graph
Safety (M/ Profit
a
drawn on horizontal or x-ais
This is P/V Ratio Sales line (in volume or value)
is
above the so because margin of safety is
vertical or y-ais.
Profits and losses are given on and the below the
break-even point give the volume of
some sales beyond 3. The area above the horizontal
of xais is called the prot area area
profit
calculated break-even point ana
which can be au sales
s
horizontal axis is the loss
area.
Profit
or Margin of Safety P/V ratio
x
as
4. Profits and losses at different
levels
ot acvity are preet aganst corresponding sales and
caled protit line. In case of more
MS. = Profit then these points are joined
and extended.
ins
ine s
for each product should bedrawn
The size P/V Ratio 100 profit line
of one products, a separate withthe salkes
es line is the break-even point.
margin of the margin of safety is 5. Thepoint where profitline interserts
there will safety indicates that the an important indicator Sraphtrom ollowing data:
the
business isstill be some profit. On thebusiness
of P/V
sound and even ifthe strength or a bu
a
is large LLUSTRATION18 Prepare
of the comparatively
business and weak other
and even hand, small lail margin of
there is
substa a sales,
The margin of may result into a small safety
decline in the sales indicates that position 0 60,000
safety losses. woula fect the protit Units produced
1. By can be
the levelimproved by
auye 15
increasing Selling price per unit 0
productiontaking following steps
unt
of the Variable cost per
Fixed cost
150,000
on the graph
graph when the Protit to be earned is 87,500.
sales o n the
Show the expected
 Fixed Cost ()

Cost & Sales (In Lakhs Rs.)

*

E
Cost and
Revenue (In Lakhs Rs.)
5

(R)
Cost ani Revenue
9.30 9.31
Break-Even Analysis
and
C.ost Volume Profit
and Profit
Volume
Cost
Break-Even Analvsis
Alternative 1 Advantages of Marginal Costing and CVP Analysis
Fixex Cost )
Variable Cost Per Unit . )
2,40,000 Alternative2 and easy to understand
Simple to operate
SellingPrice per Unit ) 0 1.
1,00, 00 of overheads
100 Removes complexities of under-absorption
SOLUTION 80
100 3 Helps managementin Production Planning.
) Calculation of Break-Even Point stocks
No possibility offictitious profits by over-valuing
Break-Even point Fixed cost Facilitates calculation of important factors like B.E.P
Contribution per unit
Valuable aid to management for Decision-Making
B.EP.s{Aiternative 1)= 2,40,000 = 6,000 units Facilitates study of relative profitability
(100-60)
8. Complimentary to Standard Costing and Budgetary control
BEP. (Alternative 2) = 00,000
5,000 units. 9. Helps in Cost Control
i) Determination of Cost of Indifference 0. Profit Planning
Cost Indifference Point 11.
Difference in Fixed Cost Management Reporting
Difference in Variable Cost 4. It
per Unit prevents the carry forward of current year's fixed overheads through valuation of closing
1,40,000 stocks. Since fixed costs are not considered in valuation of closing stocks, there is no
20 7,000 units.
i) Alternative Suitable possibility offactitious profits by over-valuing stocks.
for Different
(a) Alternative 2 is Levels of Sales 5. It facilitates the calculation
suitable for level of sales of various important factors, viz., break-even point, expectations of
as well as below cost profits at different levels of production, sales necessary to earn a predetermined target of
2 under
break-even point is lower as
this situation. to
compared alternativeindifference
1. The
point of 7,000 units, as the total cost profit, effect on profit due to changes of raw materials prices, increased wages, change in
(b) Altemative
profit shall also be
higher in alternative sales mixture, etc.
1 is suitable for level of
give higher profits. sales above the cost 6. It is a valuable aid to for
indifference point of management decision-marking and fixation of selling prices,
For clear 7,000 units as
IS given below: understanding of the it will selection of a profitable product/ sales mix, make or buy decision,
problem of or
above, the
profitability of two alternatives at 6,000 units and limiting factor, determination of the optimum level of activity, close or shut key down
9,000 units of
decisions, evaluation performance and
Sales
capital investment decisions, etc.
7. It
facilitiates the study of relative profitability of different product lines,
6,000 units production facilities, sales divisions, etc. departments,
Alternative 9,000 units
Contribution ) 8. It is standard costing ana
2 1
complimentary to ouagetary control and can be
used
Fixed Cost) 240,000 to yield better
results alongwith them
1,20,000 3,60,000 1,80,000
2,40,000 9. Since fixed costs are ana
1,00,000 2,40,000 1,00,000 not controluadie
t is or
only variable
Profit ) controllable,
marginal costing oy aviang costs into marginal cost that is
Nil
controllable and
OU,UU0 in cost control.
20,000 1,20,000 non-controllable, hely
10.
10 ItIt helps the
Dy
helps management in a
ADVANTAGES OF MARGINAL s, Further,Proyne
break-even
pagchartsmaking study of relationship
and
The COSTING AND CVP ANALYSis easily understandable even to a layman. profit graphs make the hetwean
following are the important whole problem
The of marginal costing 11. It is lin
ed marginal
the
technique of marginal advantages
COsEs are costing is to
very focussingmanagement otreporting.
attention costing facilitates
very simple exception problems which
kept outside the unit cost, the operate and easy o waste time on roblems which dodo not management towards
cost are much less cost hasis of margna 'management by
statements prepare require urgent attention more
of important areas than
the to
t does away with complicated. heads
LIMITATIO OR DISADVANT higher managements.
and hence the need for allocation, of so ma
many
ANTAGES OF MARGINAL
removes the apportionment and abs In spite advantages, the
complexities of under-absorption of 00eT t s limitations technique of marginalCOSTING AND CVP ANALYSIS
ue
Marginal cost remains
or costing suffers
constant in nature and the same per unit of output irrespective from the
"o following
helps the management in production
p
 Bredk
n e P oa
tn and
Profit
9.32
Cost Volume Profit and
ne
SCELLANE
NEOUS ILLUSTRATIONS
1. The technique of Break-Even Analyais td. has an
Co. Ltd.
marginal costing is based upon a mumber of LUSTRATIO
oATION 23.X. arn overall
P/V
e
assumptions which mar
selling price for rato of 40% The
hold good under all circumstances. 30/- Determinethe
not to be
2. Al costs are not divisible into
in nature. it is
fixed and variable. There are certain costs which are BEStÍnnted product'A. marginal cost of product
very difficult and arbitrary to classify these costs semi-variahi
into fixed and
SILUTTON
elements. varia. P/Vratio =ontribution
3. Variable costs do not
altoays remain constant and do not always vary in direct Sales 40% (given)
volume of output because of the laws of is100, then contributi
4.
diminishing and increasing returns. proportion to ifselling
price
variable cost of 60 is 7100.
is 40 and variable cost
is R60
Selling prices do not remain constant for Hence,
ict having The seling price of a product (100-40). Thus,
having avariable sling
ever and for all levels of
changes in the general price level, etc. output
p r o d u c t
discounts for bulk orders, due to 80-shoudld
a be0x30
competition. c eof =750. cost of
5. Fixed costs do not remain comstant 60
after a certain level of
ignores the fact that fixed costs are also controllable. activity. Further, marginal costino calculated s
also be
6. The exclusion of
fixed costs from the t can Contribution
stocks of finished P/V ratio
illogical since fixed costs are also incurred
goods and work-in-progress is Sales
on the manufacture of products. Stocks
marginal costing are undervalued and the profit and loss account cannot reveal true
valued on Contribution
Similarly, as the stock are undervalued, the balance sheet does not profits. 40% =
Sales
Although the technique of marginal costing overcomes the give
a true
7. picture. 0
Sales-Variable Cost
absorption of fixed overheads, the problem of under or over- 40%
variable overheads.
problem still exists in regard to under or over-absorption of Sales
8. Variable Cost
Marginal costing completely ignores the time 40% =1-
contribution but one takes longer time to factor. Thus, if two jobs give equal O Sales
be regarded as costlier than the
complete, the one which takes longer time should Variable Cost
other. But this fact is = 100-40= 60%
costing. ignored altogether under marginal O Sales
9. The Variable Cost
technique of marginal costing cannot be applied in contract or Sale Price
because in such cases,
normally the value of work-in-progress is veryship-building industry
high and the exlusion
0 60%
of fixed overheads may result into losses every year and
completion of the job. huge profit in the year of 303100
60% 60
10. Cost control can be
better be achieved with the
help of other techniques, viz., standard costing Hence, Sale Price =T50. make
and budgetary control than the same management
by marginal costing technique. B both under 2017
and Company for the year ending
11. Fization of selling prices in the
long run cannot be done without considering fixed osts. STRATION 24. Companm A profit and
loss accounts
and sell the Their budgeted
Thus, pricing decisions cannot be based on ype of product.
marginal cost alone. are as followsSe
CompanyB
12. In CVP analysis, it is assumed that
levels of operation. This
productivity and efficiency will remain constant at various CompanyA
assumption may not hold good in real situations. 3,00000
13. It is difficult to establish cost-volume-profit relationship
quantum of opening and closing inventories.
when there is a change in the
Sales
3,00000 2,00000
Z0000
220000
14. Itis difficult to the Less:Variable cost 2,40,000
cost-volume-profit analysis for a multi-product firm or situation.
use
Fixed cost 30.000 270000
30.000
15. In the present
days of automation, the proportion of fixed costs in relation to variable costs 30,000
is very high and hence
managerial decisions based upon only the marginal cost ignoring equaly Profit of
important element offixed cost may not be correct. make a
profit
You are required to: will
Although, the technique of marginal costing suffers from the above mentioned points for
each company two
companies
it is very useful tool in the hands of the
a limitations, Calculatethe break-even
each of the
management and is extensively used for cOst (b) Calculate the sales volume
vhich
control, decision-making and profit
planning. a
10,000.
 Analysis
9.35
Break-Even
and
Profit
Voluime
sales-Sales a t B.E.P.
Cost
= =Actual =7 1,50,000
Cost Volume Profit
and Break-Even Analysis Margin ofsafetyCompany A =3,00,000-1,50,000
in c o n d i t i o n s
of: or M/S ratio
1,50,000 x100 50%
9.34 greater profits 3,00,000
is likely to
earn
(c) State which company
demand for the product, Company B
3,00,000-2,10,000 =R 90,000
) Heavy
Low demand
for the product.
M/s Ratio 3,00,000
90,000 100 30%
i)
Give y o u r reasons.
volume of business, company B is
better because it has higher
in the
sOLUTION of increase in conditions of heavy demand.
larger profit
case
In
Fixed Cost () and it will
earn
an advantageous position
as break-even
Break-Even Point P/V ratio A will be in
P/V ratio demanand, Company is also higher in case of
In case of low and further margin of safety
Contribution (i) costs are low
as well as fixed
P/V ratio Doint
Sales
Company A.
calculate
Sales- Variable Cost following
information
From the
=
Contribution
3,00,000-240.00 100 LLUSTRATION 25.
Ratio, Company A
=-
P/V 3,00,000 i) P/V ratio
(i) Break-even point
60000x100 =20%
(1) Margin safety
of
3,00,000 3,60,000
3,00,000-200J0010 100
Company B = Total Sales
3,00,000 30
unit
Selling Price, per 1,00,000
1,00,00100 =33o Variable cost, per unit
3,00,000 3 Fixed cost reduced?
the margin of safety
reduced to ? 90, by how much is
Break-Even Point, Company A
30,000 (p) If the selling price is
20%
30,000x100 SOLUTION
=1,50,000 Contribution
20% P/V ratio
Sales
70,000
B.EP, Company B Sales- Variable Cost
33o Sales
70,000x100 3,60,0001,80,00050
100 3,60,000
Fixed Cost
70,000x100x3 _7 2,10,000
(ii) Break-even Pointp/V Ratio
100
1,00,000 1,00,000 XL=F2,00,000
+Desired Profit
(b) Sales to earn a desired Profit =. FixedCost 50% 50
P/V Ratio (iii) Margin of safety = Actual Sales -
Sales at B.E.P.
Company A 30,000+10,000 3,60,000-7 2,00,000 = R1,60,000
20% (iv) If the selling price is reduced to 90
40,000 x10-z2,00,000 Sales 3,60,000 x 90 3,24,000
20
100
Company B ,000+10,000
Fixed Cost
Break-even pointContribution per
33
80,000 x100 x3
7240,000 1,00,0001,00,000 2, 500 units
100 90-- 50 40
 B r e a k - E v

and Break-Even Analysis

and

9.36 Profit
wolume The
Cost Volume Profit and wing data are
Break-Even A LUSTA.
TRATION 27.
or, B.E.P. (in sales value) =2,500 x 90 2,25,000
available from
=
the records of a 9:31
Reduced Margin of safety New B.E.P. Old B.E.P.
company
S a l e s

2,25,000-2,00,000 25,000 V a r i a b l eC o s t

FixedC o s t
ILLUSTRATION 26.
There are two similar
the same 60,000
management desires to merge these two factories
plants. The following under management
particulars are available required
to : 30000
Factory I are
You
Capacity operation 100% late the P/V Ratio, Break-Even Point and
Sales FactoryIl
300 Lakhs 60%
Margin of Safety at this level.
Variable costs rulate the effect of 10% increase in sale price.
Fixed costs 220 Lakhs 120 Lakhs. (b) lculatethe effect of 10% decrease in sale price.
40 Lakhs 90 Lakhs
You are
required to calculate : 20 Lakhs
(a) What would be the S9OLUTION
capacity of the to be
even? merged plant operated for the Contribution
purpose of break a)PIVRatio X100
(b) What would be the Sales
profitability on working at 75%% of the merged Contribution = Sales-Variable Cost
SOLUTION: capacity. =R 60,000-30,000 =R 30,000
(a) Calculation of the capacity of P/V Ratio 30,00010 50%
the merged plant at break-even 60,000
Factory 1
(at 100% capacity) Factory II
(at 100% capacity) Combined Break Even Point Fixed Cost
in lakhs (at 100% capacity) P/V Ratio
Sales i n lakhs
300 in lakhs
Less: Variable Cost 200
220 500 15,000 x100 -730,000
Contribution 150 50
S0 370
150 = Present Sales-Sales at B.EP.
Fixed Costs O 130 Margin of Safety
20 =60,000-30,000 =R30,000
60
Combined P/V Ratio -Combined Contribution <100 6) Effect of 10% increase in Sales Price:
Combined Sales Sales = R60,000+10%={66,000

150
500
100 26% =
-Contribution 100
P/V Ratio
Sales
Sales at Break-Even Point =0mbined Fixed Cost 66,000-30, 000100-30,U0 x 100=54.55%
Combined P/V Ratio 66,000
66,000
60 Total Sales
=- Fixed Cost
x100=7 230.8 lakhs Fixed Cost
26% 26 Contribution
Break-Even Point Total
P/V Ratio
Break-Even Point =5reak - Even Sales Volume
Total x100 15,00066.000 =27,50
Capacity Sales Volume
230.8 36,000
5 0 0 x100 = 46.16% atB.EP
= Actual Sales-Sales
Thus, the a r g i n of Safety 66,000-27,500= 38,500
capacity of the merged plant to be
operated for the purpose of break-even would be 40.10
(b) (Effect of 10% decreas in Sales Price: =R 54,000
R60,000-10%
Profitability Statemet at 75% of the
Merged Capacity Sles
Sales in Lakhs Contribution 100
-
=
375.00 24,000100 =44.44%
Less: Variable cost = P/V Ratio Sales
(100-26%) 74%
Contribution 277.50 54,000-30,0 4,000
97.50
Less: Fixed costs 54,000
60.00
Profit FixedCost Sales
bution

Break-Even PointTatal
TotalContribu
9.38
Cost Volume
Profit and Analysis
Break Even Analysis Profit and
Break-Even
9.39
15,000x54,000=7 33,750
24,000
CostVoui e
30,00,000+5,00,000 175,000 units
Margin of Safety =
Actual Sales-Sales at B.E.P. 20
54,000-33,750 ={20,250 Desired Sales (Value) 1,75,000 x35
LLUSTRATION 28. J.K. Ltd. sold =61,25,000
are 15 (manufacturing costs R 12 and 2,00,000 units ot its
product at 35
throughout the year and amount of selling
cost of 7 3 per unit). Fixed costs per unit. Var
beginning or ending inventories. 30,00,000 (ncluding are
depreciation
.
incurred costs Review Questions
Required
of
10,00,000). ThereunifoOmly
A.SHORT ANSWER TYPE QUESTIONS
)Estimate break even sales level
() Estimate the P/V ratio. quantity and cash breakeven sales level
1. Define marginal cost.
2. What is contribution ?
(i) Estimate the number of units
quantity.
that must be sold to 3. What is PN ratio ?
(iv) Estimate the sales earn an
level in
units and value to income (EBIT) of R
4. Give marginal cost equation.
3,00,000. Assume 40% 2,00,000.
corporate income tax rate. achieve
5. What is Break-Even Point ?
an after tax income (PAT)
SOLUTION: of 6. Define angle of incidence.
7. What is cash break-even point ?
() Break-Even Sales (Units) 8. What is meant by PV ratio ?
Fixed Cost
Contribution per unit Fixed Cost 9. What do you understand by
10. Give any three objectives or uses of CVP analysis.
cost-volume-profit analysis?
Selling price Variable Cost unit
-
= 30,00,000 = 1,50,000 units
per 11. What are the main assumptions of CVP analysis ?
20 12. Write a brief note on cost-volume-profit analysIS.
Cash Break-Even Sales (Units) =- Cash Fixed Cost
13. What are the limitations of break-even charts ?
14. How is margin of safety calculated?
Contribution per unit
15. Give any four limitations of CVP analysis.
20,00,000
20 =1,00,000 units B.ESSAY TYPE QUESTIONS
) P/V Ratio ? DIsCuss ts objectives and assumptions.
Contribution per unt x 100
1. What do you
2. What do you understand by
mean by cost-volume-profit
analysis
contribution ? How does t help management in solving various
Selling price per unit
problems ?
100=
35
57.142%% 3. What is Profit Volume Ratio
? Describe its importance.
analysis DISCUsS ne assumptions and the limitations of this
i) Number of 4. What is meant by break-even
units that must be
sold to earn EBIT of 7 technique.
Desired Sales (Units) 2,00,000 5. Explain the term 'break-even
point. How
istdetermined and what is its use ?
Fixed cost+ Desired profit purposes of constructing such charts
? State the
What is a break-even chart ? What pront graph
is a
6.
Contribution per unit 7.
7.
Braak-even chart must be applie win an iniegent discimination, with an adequate graph of
"Break-eve derlving the technique and of the limitations Surrounding its practical applications."
giving ilustrations.
(iv) Number of units that
30,00,000+2,00,0001,60,000
20 units R
Elucidate the
statement
Discuss the importance ot toilowing terms in relation to cost-volume-profit analysis
Profit After Tax must be sold to earn PAT of
(a) Break-even point
Tax rate = 3,00,000 3,00,000 (b) PV ratio
of incidence
(c) Angle
40% (d) Margin
of safety.
Profit Before Tax 9. The technique of marginal costing and GVP analysis can be a
valuable aid to
3,00,000x =7 5,00,000 Explain the advantages and limtations of marginal costing and cost-volume profit management". Discuss.
60 Whe' an
analysis.
Desired Sales (Units) 11. you understand by the term
business management ? "cost-volume-profit relationship ?
Fixed Cost +Desired Profit Why is this relationship
Contribution per unit