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• profit planning
• decision making
BREAK-EVEN ANALYSIS
• Profit
Margin of safety x CM ratio
• Margin of safety
Sales – BE
• Contribution margin
Sales – variable expenses
B)
No. of units to be sold if Management want to earn Rs. 720
a)
• A company sells T-Shirt @ Rs 8/-per unit.
Management expects to sell between 12000 units to
20000 units.
• The business will incur fixed expenses of Rs
10,000/- and variable expenses of 50% of sales.
b)
• If the company desire to earn profit of Rs 14,000 in
above example. What should be the sale level?
SOLUTION TO EXAMPLE 2
a) Break Even Sales (Units) = 10,000 / 4 = 2500 Units
Break Even Sales (Rupees) = 10,000 / 0.50 = Rs. 20,000
In the early 1990s, General Motors Corp. laid off tens of thousands of its
hourly workers who would nevertheless continue to receive full pay under
union contracts. GM entered into an agreement with one of its suppliers,
Android Industries, Inc., to use laid-off GM workers. GM agreed to pay
the wages of the workers who would be supervised by Android Industries.
In return, Android subtracted the wages from the bills it submitted to GM
under their current contract. This reduction in contract price is pure profit
to GM, since GM would have had to pay the laid-off workers in any case.
(Source: “GM Agrees to Allow a Parts Supplier to Use Some of Its Idled Employees,” The Wall Street
Journal, November 30, 1992.)
CONCEPT REVIEW
EXERCISE