CVP ANALYSIS

1)Determine the fixed expenses

Sales=240,000
Direct Materials=80,000
Direct Labour=50,000
Variable Overheads=20,000
Profit=50,000

2)From the following ,calculate,

 Contribution per unit
 PV Ratio
 BEP in units and Rs
 What will be the selling price per unit if the Break even point is brought down to
25,000 units?

Fixed Expenses 150,000

Variable cost per unit 10
Selling price per unit 15

3)From the following ,calculate

a)Break even point in amount of sales in Rs

b)Number of units that must be sold to earn a profit of Rs 120,000 per year
c)How many units are to be sold to earn a net income of 15% on sales?

 Selling price per unit 40

 Variable manufacturing cost per unit 22
 Variable selling cost per unit 3

Fixed factory overheads 160,000

Fixed selling cost 20,000

4)Assuming that the cost structure and selling price remain the same in Periods I and II
and the PV ratio is 20% in both periods,calculate

a) Fixed Cost
b) BEP for sales
c) profit when sales are Rs 100,000
d) Sales required to earn a profit of Rs 20,000
 e) Margin of safety at a profit of Rs 15,000
f) Variable cost in period II

5)The PV ratio of a company dealing in precision instruments is 50% and the margin of
safety is 40 %.
Work out the BEP and the net profit if the sale volume is Rs 50 lakhs.

6) The fixed costs amount to Rs 150,000 and the percentage of variable cost to sales is
given to be 66.66%. If 100% capacity sales at normal capacity, are Rs 900,000,find out
the break even point and the percentage sales when it occurs. Find the margin of safety.
Find the profit at 80% capacity sales.

7)The following information is given to you

Sales 400000
Fixed Costs 180000
Variable costs 270000

Calculate
PV Ratio
BEP
Ascertain by how much the value of sales must be increased for the company to break
even

CVP ANALYSIS SOLUTIONS

1) S-V = F+P
Sales = 240000
V.C = 80000+50000+20000
= 150000

S - V = 240000-150000
= 90000

Contribution = 90000
C = F +/- P
90000 = F + 50000
F.C = 40000
2(i) C = S – V
= 15-10 = 5

(ii) PV Ratio = (C/ S) *100

= (5/15)*100
= 33.33%

(iii) BEP = F.C/Contribution

= 150000/5
= 30000 units

(iv)BEP (in Rs) = BEP (in units) * SP per unit

= 30000*15 = 450000

(or) F.C/ PV Ratio = 150000/33.33% = 450000

v) BEP = F.C/Contribution

Hence

Contribution = F.C/BEP(in units)

= 150000/25000
= 6 pu

SP = Contribution + V.C pu
= 6+10 = 16 pu

3(i) BEP = F.C /Contribution pu

= (160000+20000)/(40-25)
= 180000/15
= 12000 units
ii)Output to earn a profit of Rs 120000 pa
= (F.C + Desired Profit) / Contribution pu
= (180000+120000)/*(40-25) = 20000 units

iii) Let Sales = X units

X = (F.C + Desired Profit) / Contribution pu

= (180000+.15(40X))/15
15X = 180000+6X
9X = 180000
X = 20000 Units

4)

a)F.C = (Sales*PV Ratio)- Profits

= (140000*20%) – 13000
= 15000

b) BEP = F.C/PVRatio
=15000/20%
=75000
c) Desired Profit = (Sales*PV Ratio)- F.C
= (100000*20%) -15000
= 5000

d) Sales (in Rs) to earn a desired profit

= (F.C.+ Desired Profit)/PV Ratio
(15000+20000)/20%
175000

e) MS= Profit/PV Ratio

= 15000/20%
= 75000
f) V.C = 140000-15000-13000
= 112000

5) Sales = 50,00,000
Less: Margin of Safety = 20,00,000
( 40%)

Sales at BEP = 30,00,000

PV Ratio = 50%

M S = Profit/ PV Ratio

Hence

M S * PV Ratio = Profit
20,00,000 * 50% = 10,00,000

6) VC % =66.67%
So PV Ratio =33.33%

a)BEP = FC/PV ratio

=150,000/33.33%
=Rs 450,000

% at which BEP sales occurs is (450,000/900,000)x100

=50%

b)MS = 900,000-450,000=450,000

c)Profit at 80% capacity

900,000*80% =720,000
720,000 x 33.33%-150,000 =90,000

Profit at 80% capacity is Rs 90,000

7) pv Ratio = (400,000-270,000)/400,000*100
=32.5%
 BEP =180,000/32.5% =Rs 553,846

Sales must be increased by 153,846 to break even (553,846-400,000)

MAKE OR BUY

1) ) Fastride Cycle Ltd. purchases 20,000 bells p.a from outside supplier at ₹ 10 each
. The management feels that these be manufactured within the factory. A machine
costing ₹ 50,000 will be required to manufacture the item within the factory. The
machine has an annual capacity of 30,000 units and life of 5 years . The following
additional information are available:
Lavour Cost per bell ₹ 2
Material cost per bell will be = ₹ 4
Variable overheads = 100% of labour cost
You are required to advise whether:
(i) The company should continue to purchase the bells from outside supplier
or should make them in the factory ; and
(ii) The company should accept an order to supply 5,000 bells to the market
at a selling price of ₹8.5 per unit?

2)A part No 293 used in the assembly of a product manufactured by your company has
during the past 3 years been a bought out item. The current price of this part is Rs 120.
Transportation costs amount to Rs 15 per piece. Sales tax is 10 %of the invoice price.
Annual requirements of this part are 6000 units. Prepare a study to enable the
management to reach a decision on whether to buy or manufacture this part.
The following estimates are available per unit
Rs
Raw Materials 96
Direct labour 8
Overheads at 800% of direct labour 64
Total Cost 168

In addition, special tools required to manufacture this product will have to be acquired at
the cost of Rs 150,000. These are to be amortised over 5 years.
The variable portion of the overhead is 100% of direct wages.
Make your recommendations
3)A machine manufactures 10000 units of a product at a total cost of Rs 21 of which
Rs 18 is variable.
This part is available in the market at Rs 19. per unit
If the part is bought from the market , then the machine can be utilized to
manufacture a component in the same quantity contributing Rs 2 per component or
it can be hired out at Rs 21000.
Recommend which alternative is profitable

MAKE OR BUY SOLUTIONS

1)
Material cost 4
Labour COst 2
Variable
overheads 2
TOTAL VC 8
ADD:FC PU 0.5
8.5

Purchases cost of bell outside = ₹ 10

Annual savings in production of bells [ 20,000 bells (₹10- ₹ 8.50)]= ₹30,000.

Calculation of depreciation per unit

Depreciation p.a. = ₹ 50,000/5years = ₹ 10,000 p.a Depreciation per unit = ₹
10,000/20,000 = ₹ 0.50 p.u
(i) Since the marginal cost per unit of ₹8.5 is lower than the market price of ₹10, it is
recommended to manufacture the component in the factory.
(ii) Marginal cost per bell is Rs. 8.00 . As depreciation of the machine is recovered
on 20,000 bells, there will be no additional depreciation on the extra 5,000 bells
to be sold in the market. Further the machine has additional capacity too.
Therefore, the company is advised to supply 5,000 bells to the market at Rs. 8.50
per unit and make a profit of Re. 0.50 per unit i.e., total profit Rs. 2,500

2) ESTIMATED MANUFACTURING COST OF PART X-293.

RATE PU Total amount

for 6000 units
Raw Material 96.00 5,76,000
Direct Labour 8.00 48,000
Variable overheads (100% of direct 8.00 48,000
Wages)
Special tools, jigs and fixtures 5.00 30,000
117.00 7,02,000

BUYING COST OF PART X-293

RATE PU Total amount

for 6000 units
Current purchase price 120.00 7,20,000
Add:Sales tax 12.00 72,000
132.00 7,92,000
Transportation costs 15.00 90,000
147.00 8,82,000

It is recommended that part X-293 be manufactured as this gives a saving

of Rs 180000 (882000-702000) pa

3)ALTERNATIVE I

10000 units manufactured internally

Variable cost
= 10000 * 18 = Rs 180,000

ALTERNATIVE II
10000 units bought from outside, Capacity is used to manufacture
another product.

Purchase Price (10000*19) 190,000

Less: Contribution from the other product
(10000*2) 20,000
 170000

ALTERNATIVE III

10,000 units bought from outside, machine time is hired out.

Purchase Price (10000*19) 190000

Less: rent from hiring out 21000
169000

Alternative III should be adopted as it is least expensive.

SPECIAL ORDER

1)The cost sheet of a product is given as under

Rs Rs PER UNIT

Direct materials 5.00

Direct wages 3.00
Factory overheads
Fixed 25,000 (0.5 pu)
Variable 0.50 1.00
Administrative expenses 0.75
Selling and distribution
OH
Fixed 12,500(0.25 pu)
Variable 0.50 0.75 (0.5+0.25)
10.50

The selling price is Rs 12 PU

The above figures are for 50,000 units. The capacity of the firm is 65000 units. A foreign
customer wants to buy 15000 units at Rs 10 pu. Should the order be accepted? What
would be your answer if the order was from a local merchant?
2)A company manufactured 10,000 units of a product at Rs 4 pu and there is a home
market consuming the entire production at Rs 4.25 pu. In the year 2023 there is a fall in
the demand in the home market which can consume 10,000 units at a price of Rs 3.72 pu.
The cost for 10,000 units is as follows:
Material 15,000
Wages 11,000
Fixed OH 8,000
Variable OH 6,000

It is realized that the foreign market can consume 20,000 units if offered at a price of Rs
3.55 pu. These 20,000 units will be over and above the 10,000 units being sold in the
domestic market. It is also discovered that for every additional 10,000 units over the
initial 10,000 the fixed OH will increase by 10%. Is it worthwhile to capture the foreign
market?

SPECIAL ORDER SOLUTIONS

1) MARGINAL COST OR ADDITIONAL COST FOR 15000 UNITS

Rs PU Rs (per
15000 units)
Direct Materials 5.00 75,000
Direct Labour 3.00 45,000

Prime Cost 8.00 1,20,000

Variable overheads
Factory 0.50 7,500
Selling and distribution 0.50 7,500

Marginal Cost 9.00 1,35,000

Sales 10.00 1,50,000
1.00 15,000

The order from the foreign customer will give an additional contribution
of Rs 15000.Hence it should be accepted.
The order from the local merchant should not be accepted at a price of Rs
10 as it is less than the normal price(Rs 12).This might affect relationships
with other customers and there might be a general tendency of reduction
in price.

2)Analysis of cost data for 10000 units

Rs PU Total
Direct Materials 1.50 15000
Direct Labour 1.10 11000
Variable overheads 0.60 6000

Marginal Cost 3.20 32000

Fixed Overheads 0.80 8000

Total Cost 4.00 40000

Statement showing the advisability of selling in the foreign market

Sale – Sale TOTAL

10000 units -20000 Units
SALES
(10000*3.72)
(20000*3.55) 37,200 71,000 1,08,200

Direct Materials 15,000 30,000 45,000

Direct Labour 11,000 22,000 33,000
Variable overheads 6,000 12,000 18,000

Marginal Cost 32,000 64,000 96,000

CONTRIBUTION 5,200 7,000 12,200

Less: Fixed Overheads 8,000 1,680 9,600
(800+880)

PROFIT/LOSS (2,800) 5,320 2,520

Hence 10000 units should be sold in the home market at 3.72 pu and
20000 units should be sold in the foreign market at Rs 3.55 pu.The total
profit from this is Rs 2600.

https://www.studocu.com/my/document/universiti-teknologi-mara/cost-
and-management-accounting/5-question-special-order/29612686
https://openstax.org/books/principles-managerial-accounting/pages/10-
4-evaluate-and-determine-whether-to-keep-or-discontinue-a-segment-
or-product