ASSIGNMENT M.

M- 20

Ques 1: A company manufactures a single product having a Marginal Cost of Rs 0.75 a unit.
Fixed Costs are Rs 12,000. The market is such that up to 40,000 units can be sold at Rs 1.50 a
unit, but any additional sales must be made at Rs 1 a unit only. There is a planned profit of Rs
20,000. How many units to be made and sold?

Ques 2 : M Ltd. manufactures three products P, Q and R. The unit selling prices of these
products are Rs 100, Rs 80 and Rs 50 respectively. The corresponding unit variable costs are Rs
60, Rs 60 and Rs 20. The proportions (quanity-wise) in which these products are manufactured
and sold are 20%, 30% and 50% respectively. The total fixed costs are Rs 5,80,000.

Given the above information, you are required to work out, (a) the overall break-even quantity;
(b) the product-wise break even point in Qty. (c) product-wise break-even point (in value); (d)
overall P/V Ratio (e) overall break-even point (in value)

Ques 3 : Total fixed cost for the year is Rs 6,00,000. This includes depreciation amounting to Rs
60,000, notional salary for proprietor's supervision Rs 24,000, write off of deferred revenue
expenditure Rs 16,000. Selling price of his product is Rs 80 and per unit variable cost is Rs 70.
Calculate cash break-even point

Ques 4 The variable Cost structure of a product manufactured bya company during the current
year is under:

Rs per unit

Material 160

Labour 40

Overheads 16

The selling price per unit is Rs 360 and the fixed cost per sales during the current year are Rs
5.60lakhs and Rs 54 lakhs respectively.

During the forthcoming year, the direct workers will be entitled to a wage increase of 10 % fron
the beginning of the year and the material cost, Variable overheads and fixed overhead are
expected to increase by 7.5%, 5% and 3% respectively.

You are required to compute:

a) The new selling price, if the current P/V ratio is to be maintained.

b) The quantity to be sold during the forthcoming year to yield the same amount of profits as in
the current year assuming the selling price to remain at Rs 360.

Ques 5 A retail dealer in garments is currently selling 24,000 shirts annually. He applies the
following details for the year ended 31st December, 1991:

Rs

Selling Price per shirt 40

Variable Cost per shirt 25

Fixed Cost: Staff Salaries for the year 1,20,000

General Office Costs for the year 80,000

Advertising Costs for the year 40,000

As a cost accountant of the firm you are required to answer the following :

a) Calculate the break-even point and margin of safety in sales revenue and number of shirts
sold.
b) Assume that 20,000 shirts were sold in a year. Find out the net profit of the firm.

If it is decided to introduce selling commission of Rs 3 per shirt, how many shirts would require
to be sold in a year to earn a net income of Rs 15,000.

Assuming that for the year 1992 an additional staff salary of Rs 33,000 is anticipated, and price
of a shirt is likely to be increased by 15%, what should be the break-even point in number of
shirts and sales revenue?

Ques7 A Chartered Accountant now spends Rs 9 per km on taxi fares for his clients work. He is
considering two other alternatives, the purchase of a new small call or and old bigger car.
 Items New small car (Rs) old bigger car
(Rs)

Purchase Price 3,50,000 2,00,000

Sales price, after 5 year 1,90,000 1,20,000

Repairs and Servicing, per annum 10,000 12,000

Taxes and Insurance, per annum 17,000 7,000

Mileage per kg of CNG 10 kms 7 kms

CNG Price, per kg 35 35

(a) Which of the three alternatives will be cheapest, if he is expected to travel 10,000 kms.
annually?

(b) If his practice expands and has to travel 19,000 kms. per annum, what should be decision?

(c) At how many km. per annum will the cost of the two cars break-even? Ignore interst and
income-tax.

Q8 The Benzer Shoe Company sells five different styles of ladies chappals with identical
purchase costs and selling prices. The company is trying to find out the profitability of opening
another store, which will have the following expenses and revenues:

Per Pair (Rs)

Selling price 30.00___

Variable Cost 19.50

Salesmen's commission 1.50__

Total Variable cost 21.00__

Annual fixed costs:

Rent 60,000

Salaries 2,00,000

Advertising 80,000
Other fixed expenses 20,000__

TOTAL 3,60,000__

(a) Calculate the annual break-even point in units and in value. Also determine the

profit or loss if 35,000 pairs of chappals are sold.

(b) The sales commissions are proposed to be discontinued, but instead a fixed amount of Rs
90,000 is to be incurred in fixed salaries. A reduction in selling price of 5% is also proposed.
What will be the break-even point in units?

(c) It is proposed to pay the store manager 50 paise per pair as further commission. The selling
price is also proposed to be increased by 5%, what would be the break-even point in units?

(d) Refer to the original data. If the store manager were to be paid 30 paise commission on each
pair of chappals sold in excess of the break-even point, what would be the stores net profit if
50,000 pairs were sold?

Q7 (a) Differentiate between:

(i) Cost reduction and Cost control

ii) Absorption Costing vs Marginal cosing

b)Can there be two Break Even Point ? Comment . If yes, then state the circumstances.