Annexure

1.A manufacturing Company’s director budgeted the following data for the coming year:

Sales (1, 00,000 units) --3, 00, 00

Variable costs ----1, 20,000

Fixed costs ---- 1, 50,000

a) Find out the P/V ratio, break-even points & margin of safety

b) Evaluate the effect of:

i) 10% increase in physical sales volume.

ii) 10% decrease in physical sales volume.

iii) 50% increase in variable costs.

iv) 5% decrease in variable costs.

v) 10% increase in fixed costs.

vi) 10% decrease in fixed costs.

vii) Rs 15,000 variable cost decrease accompanied by Rs 45,000 fixed cost increase.

2.A single product company sells its products at Rs 60 per unit. In 1996, the company
operated at a margin of safety of 40%. The fixed costs amounted to Rs. 3, 60,000 & the
variable cost ratio to sales was 80%.

In 1997, it is estimated that the variable costs will go up by 10% & the fixed costs will
increase by 5%.

Find the selling price required to be fixed in 1997 to earn. The same P/V ratio as in 1996.
Assuming the same selling price of Rs 60 per unit in 1997, find the number of units
required to produced & sold to earn the same profit as in 1996.
3. Murthy Ltd has two divisions P & Q.P has the capacity to manufacture 150000 units of
a special component X annually and it has some idle capacity currently. The relevant
details extracted from the budget of P are as under:

Sales to outside customers- 220000@rs 80 per unit

VC per unit – Rs 60

Divisional fixed cost 850000

Capital employed 775000

Cost of capital -15%per annum

Division q received an order for which it requires 25000 units of a component similar to
X and additional variable cost of Rs 6 per unit will be incurred to make minor
modifications to X to suit the requirement of division Q.What is the minimum transfer
price per unit which P should quote to Q if it targets a residual income of Rs 2500000.

4.This price structure of a gas cooker made by super frame company Ltd is as follows:

Per gas cooker

Materials 30

Labor 10

Variable overheads 10

50

Fixed overheads 25

Profit 25

Selling price 100

This is based on the manufacture of one lakh gas cookers per annum. The company
expects that due to competition they will have to reduce selling price, but they want to
help the total profits intact. What level of production will have to be reached that is , how
many gas cookers will have to be made to get the same amount of profits, if :

A) The selling price is reduced by 10 %?

B) The selling price is reduced by 20%?

5.Assuming that the cost structure and selling price remains the same in the period I & II
as given in the preceding question, find out:

a) P/V ratio

b) Break-even point for sale

c) Profit where sales are Rs 1,00,000

d) Sales required to earn a profit of Rs 20,000

e) Safety margin in period II.

Period Sales Profit

Rs Rs

I 120000 9000

II 140000 13000
6.Sterling Tea Ltd & dollar Tea Ltd, sell their entire product in tea in the same market at
a uniform price of Rs 10 per kg. Their budget for the year ended 31st December 2007
was as follows:

Sterling tea Dollar tea

Rs Rs

Sales 1500000 1500000

Less: variable cost 1200000 1000000

Fixed cost 150000 350000

Net profit 150000 150000

You are required to:

a) Calculate the break-even point of each company

b) State the impact on each company when the year ended with production exceeding
the budget by 20% and had to be sold at a price 10% lower than budgeted. The
variable & fixed cost increased by 5% over budget.

7.A Ltd company has three departments. The following data relates to the period ending
31 st December 2006.

Department A Department B Department C

Sales ( Rs) 80000 40000 60000

Marginal cost:

Direct material 10,000 5000 10000

Direct labor 4000 5000 10000

Variable overhead 10000 5000 20000

Fixed overheads 20000 10000 20000

Total cost 44000 25000 66000

The manager in charge of department is disappointed with the result of higher marginal
cost & there is no hope of being reduced further. You are required to present the
information in the most suitable manner indicating whether or not department C should
be close down.

8.A radio manufacturing finds that while it costs Rs 6.75 each to make a component of
376 R , that same is available in the market at Rs 5.75 each with the assurance of
continued supply.

The breakdown of costs is as follows:

Materials Rs 2.75 each

Labor Rs 1.75 each

Other variable costs Rs 0.5 each

Fixed cost Rs 1.25 each

Rs 6.25

a) Should you make or buy?

b) What should be your decision if the supplier offered the component at Rs 4.55?