Solved problems on Break even analysis - 1
Solved problems on Break even analysis - 1
Beta Associates has the following details:
Fixed cost = Rs. 40, 00,000;
Variable cost per unit = Rs. 200;
Selling price per unit = Rs. 400;
Find (a) The break-even sales quantity, (b) The break-even sales, (c) If the actual production quantity is 60,000, find (i) contribution and (ii) margin of safety by all methods.
Given Data:
Fixed cost (FC) = Rs. 40,00,000
Variable cost per unit (v) = Rs.200
Selling price per unit (s) = Rs.400
Production quantity (Q) = 60,000
Formula used:
Contribution = Sales – Total Variable cost
M.S = Sales - Break-even sales
M.S = (Profit / Contribution) * sales
Profit = Sales – [Fixed cost + total variable cost]
M.S. as a per cent of sales = (M.S./Sales)*100
Solution:
(a) Break-even quantity = 40,00,000 / (400 – 200)
= 20,000 units
(b) Break-even sales = [40,00,000 / (400-200)] x 200
= Rs. 80,00,000
(c) (i) Contribution = Sales – Total variable cost
= (s x Q) – (v x Q)
= (400 x 60,000) – (200 x 60,000)
= 2,40,00,000 – 1,20,00,000
= Rs. 1,20,00,000
(ii) Margin of safety
Method I
M.S = Sales - Break-even sales
= (s x Q) – Break-even sales
= (400 x 60,000) - 80,00,000
= Rs. 1,60,00,000
Method II
Profit = Sales – [Fixed Cost + Total Variable Cost]
= (s*Q) – [FC + (v*Q)]
= (400 x 60,000) – [40,00,000 + (200 x 60,000)]
= 2,40,00,000 – 1,60,00,000
= Rs. 80,00,000
M.S = (Profit / Contribution) * sales
= (Profit / Contribution) * (s*Q)
= (80,00,000 / 1,20,00,000) x (400*60000)
= (0.666666666) x 2,40, 00,000
= Rs. 1,60,00,000
M.S. as a per cent of sales = (M.S./Sales)*100
= (1,60,00,000 / 2,40,00,000) x 100
= 66.67%
Results:
(a) Break-even quantity = 20,000 units
(b) Break-even sales = Rs. 80,00,000
(c) (i) Contribution = Rs. 1,20,00,000
(ii) Margin of safety = Rs. 1,60,00,000 (Method I)
Margin of safety = Rs. 1,60,00,000 (Method II)
M.S. as a per cent of sales = 66.67%
