Problems of Cost Volume Profit Analysis

Q.1 The executives of Samson Company are developing the annual profit plan. The effect on budgeted profit of several contemplated
decisions is being assessed. Some of these decisions will affect fixed costs, other will affect variable costs and still others relate to sales
price and sales volume (number of units). The profit goal set by the management is $ !,""". The following preliminary income
statement data (summari#ed) have been developed as under$
Sales at $ " per unit $
%"","""
Costs$
&ixed $ '(,)""
*ariable $ +,,""" $ ,-,)""
.rofit $ %,'""
/e0uired$ (1ach alternative is independent and assume no change in units unless specifically stated otherwise)
a. Compute planned contribution margin, profit and brea2 even point based on the preliminary plan.
b. Compute the planned contribution margin, profit and brea2 even point assuming management ma2es a decision that will cause
fixed cost to increase %" percent.
c. Compute planned contribution margin, profit and brea2 even point assuming instead that the decision will cause only variable
costs to increase %" percent.
d. Compute planned contribution margin, profit and brea2 even point assuming a decision made to increase the sales price by %"
percent.
e. Compute planned contribution margin, profit and brea2even point assuming the planned sales volume (units) is increased by %"
percent.
f. There is possibility that all the above alternatives will be included in the final profit plan that is, a %" percent increase in fixed costs,
a %" percent increase in variable costs, a %" percent increase in sales price and a %" percent increase in sales units. Compute the
budgeted contribution margin profit and brea2 even point considering the combined effect of these four changes.
g. 3ow many units would have to be sold under re0uirement ) to exactly meet the profit goal4
Q.2 &rom the following data, calculate (a) 5rea2 even .oint expressed in amount of sales in rupees (b) 6umber of units that must be
sold to earn a profit of /s. )",""" per year
Sales price /s. " per unit
*ariable 7anufacturing cost /s. %% per unit
*ariable selling cost /s. + per unit
&ixed &actory overhead /s. !,'",""" per year
&ixed Selling cost /s. !,""" per year
Q. 3 S. 8td. a multi9product furnished the following data relating the year ""$
:ear % (/s.) :ear (/s.)
Sales
Total cost
'!,"""
'","""
!","""
'+,"""
;ssuming that there is no change in prices and variable costs and that the fixed expenses are incurred e0ually in the two year periods.
Required:
a. The profit volume ratio
b. The fixed expenses
c. The brea2 even sales and
d. The percentage of margin of safety to total sales
Q.4 The 8uxom Company produces a single product. &ixed costs have been budgeted for a normal range of operation of %)",""" to
"",""" units per year. Seldom is there any significant change in inventories. 6et income at the high and low points of the normal range
has been budgeted as follows$
<nits %)",""" "","""
Sales /evenues $,",""" $%"","""
Cost of sales and expense $-,,""" $(","""
6et =ncome $,""" $%","""
Required:
a. >etermine the following$
b. The contribution margin per unit.
c. The fixed cost per year.
d. The brea29even point in units.
e. .rofit budgeted for %,",""" units
Q.5 ;n income statement of a company is given below$
Sales revenue !"","""
8ess$ *ariable costs +"","""
Contribution margin "","""
8ess$ &ixed costs %"","""
6et =ncome %"","""
Required:
a) Cost volume ratio
b) .rofit volume ratio
c) 51 sales volume
1
d) 7argin of safety and margin of safety ratio
Q.6 ollo!in" particulars are available in respect of cost and revenue data of ?@A 8td.$
=nstalled capacity ",""" units
Selling price per unit /s. -!
*ariable cost per unit /s. !"
&ixed costs /s. ",""" (including /s. ",""" for dep.)
The company has been sanctioned a term loan of /s. +!",""" and the installment including interest in the first year is to be /s.
%"",""". =t is expected that this loan will increase the production capacity /s. !,""" units. Calculate$
Required: (a) 5rea2 even .oint in units
(b) Cash 5rea2 even point in units and in terms of capacity
Q. # The /alph Company has annual fixed costs of $%",""". =n %(x sales amounted to $)"",""" as compared with $'!",""" in
%(x%, and profit for %(x was $!",""" higher than in %(x%.
Required:
a) =f there is no need to expand the companyAs capacity, what should profits be in %(x+ on a forecast sales volume of
$("","""4
b) ;t what dollar volume does /alph Company brea2 even4
Q $ The &rosty9>ip =ce Cream Company operates a chain of drive9ins selling only ice9cream products. The company is considering
opening a new drive9in stand at a desirable location. The following data pertain to the typical stand$
;verage selling price per gallon of ice9cream $ .!)
*ariable costs per gallon$
=ce9cream $ %.+'
Supplies (cups, cones, toppings, etc) $ ".!,
Total unit variable costs $ %.(
&ixed costs per month$
/ent $ '""
<tilities $ %"
Bages (including fringe costs) of employees $ %,++"
7anagerAs base salary $ '""
Cther fixed costs $ %!"
Total fixed costs $ ,'""
/e0uired$ >evelop the basis for a decision to open a new drive9in. Consider each of the following separately, based on the above set of
data$
a. Bhat is the monthly brea29even point, expressed both in gallons of ice9creams and in dollars of sale4
b. =f the rent were increased to $%,"" per month, what would be the new brea29even point in dollars and gallons4
c. =f the cost of ice9cream increased to $%.)), what would be the new brea29even point in dollars and gallons4
d. =f the manager were to be paid a commission of cents per gallon for each gallon sold beyond the brea29even point, what
profit would the stand earn at a volume of %!,""" gallons4
Q. % The Bilnot Company needs a machine with the capacity to produce "",""" units of a particular product. Two e0uipment suppliers
have submitted bids. The >o9all machine will generate $,",""" &ixed cost per yearD but if the capacity of "",""" units is reached, profit
for this product will amount to $,",""". The >o9some machine will have a fixed cost of only $!%,""" per year and will yield a profit of
$)(,""" at "",""" units. The product is priced at $ per unit.
Required:
a. >etermine the brea29even point for each machine in sales dollars.
b. >etermine the sales volume at which the two machines produce e0ual profit.
c. >etermine the range of sales dollars in which (%) >o9all is more profitable than >o9some () >o9some is more profitable than
>o9;ll.
Q.1& Company ; and Company 5, both under the same management, ma2e and sell the same type of product. Their budgeted profit
and loss account for EanuaryFEune for the coming year are as under$
.articulars Company ; Company 5
Sales revenues /s. +"",""" /s. +"","""
8ess$ *ariable costs /s. '","""
-","""
/s. "","""
-","""
-","""
&ixed costs +","""
.rofit /s. +",""" /s. +","""
:ou are re0uired to
a. Calculate the brea2 even point for each company.
b. Calculate the sales volumes at which each of the two companies will ma2e a profit of /s. %",""".
c. ;ssess how their profitability will change with change in sales volume.
Q.11 ;ll9>ay Candy Company is a wholesale distributor of candy. The company services grocery, convenience and drug stores in a
large metropolitan area. Small but steady growth in sales has been achieved by the company over the few past years while candy
prices have been increasing. The company is formulating its plans for the coming fiscal year. .resented below are the data used to
proGect the current years after tax net income of $%%",'"".
2
;mount selling price per box $'.""
;verage variable costs per box$
Cost of candy $.""
Selling expenses $".'"
$.'"
;verage fixed costs$
Selling $%)","""
;dministrative $,","""
$''","""
1xpected annual sales $%,!)","""
Tax rate '"H
7anufacturers of candy have announced that they will increase prices of their products and average of %!H in the coming year due to
increases in raw material and labour costs. ;ll9>ay Candy Company expects that all other costs will remain at the same rates or levels as
the current year.
Required:
a. Show how the proGected after9tax net income of $%%",'"" was computed.
b. Bhat is the companyAs brea29even point in units for the current year4
c. Bhat volume of sales in dollars must the company achieve in the coming year to maintain the same net income after taxes as
proGected for the current year if the selling price of candy remains at $'."" per box and the cost of candy increases %!H4
Q12. &reedom, =nc., management has performed cost studies and proGected the following annual cost based on '",""" units of
production and sales$
Total ;nnual Costs .ercent of annual variable costs
>irect material $'"",""" %""
>irect labour $+)",""" -!
7anufacturing overheads $+"",""" '"
Selling, Ieneral, and ;dministrative expenses $"",""" !
Required:
a. Compute &reedomAs unit selling price that will yield a proGected %"H profit on sales of '",""" units.
b. ;ssume that management selects a selling price of $+" per unit. Compute the dollar sales volume that wall yield a proGected
%"H profit on sales
Q.13 8i#a &letcher, president of Iamma >elta =ota 3onor Society, is ma2ing plans for a gala dinner dance
To be held at a local country club. She is trying to decide on the price to as2 for the tic2ets. 1ach tic2et will admit one couple to the
dance, entitle each partner to enGoy buffet supper, and allow all comers to receive certain party favors. ;ware of your reputation on
campus, she approaches you for advice and furnishes you with the following information$
Service charge for use of club $("".""
;dditional charge per person passing through the buffet serving line $.!
&ee to be paid Eimmy 5igtimeAs Swinging Ea## 1nsemble $+'".""
Tic2et printing charges9 &rescoe .ress (!"" tic2ets) $+,.""
.arty favors, per couple (extra favors may be returned for a full refund from the .arty Shoppe.) $%.-!
;dvertisement in newspaper $%!.,!
Iratuity paid to waitresses %"H of clubAs bill
Cost of newsletter sent to society members only $%,.)!
Required:
a. =f the price set is $% per tic2et, how many tic2ets must be sold to brea2 even on the dance4
b. The society vice president, Ilen Billiams, has suggested that a floral arrangement must be placed on each of the - tables at the
club. 1ach arrangement will cost $+."". The overall delivery charge will be $(.!". Ilen is certain that, with this added attraction, all
-" seats will be filled. Bhat will the tic2et price have to be to enable the society to earn a profit of $%"" on the dance under this
alternative assuming that +)" tic2ets are indeed sold4
Q.14 The Bard Company sold %"",""" units of its products at $" per unit. *ariable costs are $%' per unit (manufacturing costs of $%%
and selling costs of $+). &ixed costs are incurred uniformly throughout the year and amount to $-(,""" (manufacturing costs of
$!"",""" and selling costs of $(,"""). There are no beginnings or ending inventories.
Required:
a. The brea29even point for this product.
b. The number of units that must be sold to earn an income of $)",""" for the year (before income taxes)
c. The number of units that must be sold to earn an after tax income of $(",""", assuming a tax rate of '"H.
d. The brea29even point for this product after a %"H increase in wages and salaries (assuming labour costs are !"H of variable
costs and "H of fixed costs).
Q.15 T/<1@ 7;6<&;CT</=6I CC7.;6:
=ncome Statement &or the :ear 1nded >ecember +%, %(x%
3
Sales(%"",""" units at $)) $)"","""
*ariable cost$
>irect 7aterial $%(","""
>irect 8abour $%"","""
&actory overhead $)","""
Total 7anufacturing variable cost $+!","""
Selling expenses $%","""
Total variable cost $+)","""
Contribution 7argin $'","""
&ixed Cost$
&actory overhead $%"","""
Selling expenses $+","""
;dministrative expenses $-","""
Total fixed cost "","""
6et .rofit $'","""
'i(en:
!"H of variable factory overhead is indirect labour. There is additional indirect labour payroll amounting to $",""" contained in fixed
factory overhead.
The union has negotiated a %"H increase in wage rates for all wor2ers classified as direct and indirect labour, effective Eanuary %, %(x.
The sales for %(x are forecast at the same level as %(x%. 6o other changes are anticipated for the coming year.
Required:
a. Compute the brea29even point for %(x% in units and in dollars.
b. .repare a forecast income statement for %(x, including changes as given. Compute the brea29even point for %(x in units and in
dollars.
c. Bhat selling price must management set in %(x if their goal is to reali#e the same dollar amount of profit as in %(x%4 The same
percentage of profit4
;ssume that selling price is to remain at $) per unit. Bhat sales volume (dollars and units) must be attained if management wishes to
reali#e the same dollar amount of profit as in %(x%4 The same percentage of profit4
Q.16 The president of 5eth Corporation, which manufactures tape dec2s and sells them to producers of sound reproduction systems,
anticipates a %" percent wage increase to the manufacturing employees (variable labour) on Eanuary % of next year.
There are no other changes in costs expected. Cverhead will not change as a result of the wage increase. The president has as2ed you
to assist him in developing the information needed to formulate a reasonable product strategy for next year.
:ou are satisfied by regression analysis that volume is the primary, factor affecting costs and have separated the semi variable costs
into their fixed and variable segments by means of the least s0uares criterion. :ou also observe that the beginning ad ending
inventories are never materially different.
5elow are the current year data assembled for your analysis$
Current selling price per unit $,"
*ariable cost per unit$
7aterial $+"
8abour %
Cverhead )
Total $',
;nnual volume of sales !""" units
&ixed costs $ !%,"""
Required:
.rovide the following information for the president, using cost9volume9profit analysis$
a. Bhat increase in the selling price is necessary to cover the %" percent wage increase and still maintain current profit9volume9
cost ratio4
b. 3ow many tape dec2s must be sold to maintain the current net income if the sales price remains at $," and the %" percent
wage increase goes into effect4
c. The president believes that an additional $%("""" of machinery (to be depreciated at %" percent annually) will increase
present capacity (!,+"" units) by +" percent. =f all tape dec2s produced can be sold at the present price and the wage increase
goes into effect, how will the estimated net income before capacity is increased compare with the estimated net income after
capacity is increased4 .repare computations of estimated net income before and after the expansion.
Q.1# ; client has recently leased faculties for manufacturing a new product. 5ased on studies made by his staff, the following data have
been made available to you$
1stimated annual sales ',"""
1stimated costs ;mounts per unit
7aterial $(),""" $'.""
>irect labour %','"" ".)"
Cverhead ',""" %.""
;dministrative expenses ,,,"" %."
4
Total $ %)+,"" $ ).,"
Selling expenses are expected to be %!H of sales, and profit is expected to amount to $%." per unit.
Required:
a. Compute the selling price per unit.
b. .roGect a profit and loss statement for the year.
c. Compute a brea29even point expressed in dollars and in units, assuming that overhead and administrative expenses are
fixed but that other costs are fully variable.
Q.1$ Southwest Community college receives grants from, the city and state government and also receives gifts from alumni and
business. =ts annual report for %(x+ includes the following statements of /evenues and 1xpenditures$
/evenues$
Student Tuition $ %,(),"""
Irants $ '"","""
Iifts $ ,',"""
Total $ %,-,","""
1xpenditures$
=nstructional $ %,%(,,"""
8ibrary $ -!,"""
Student ;id $ %",,"""
Ieneral ;dministrative $ -,"""
Total $ %,,",,"""
1xcess of 1xpenditures over /evenues $,,"""
SBCCAs controller believes that oneFhalf of all instructional costs are variable costs based on the number of the students credit hours
and that $%%",""" of the library and $%-,""" of the general administrative costs are fixed, as are all of the students aid costs. There
were %,,""" students enrolled in %(x+ averaging ) credit hours each.
Required:
a. ;ssume that SBCC receives $!"",""" in gifts and grants in %(x' and that student continue to average ) credit hour each. 3ow
many students must enroll to brea2 even if tuition per credit hour is not changed4
b. ;ssume that SBCC receives $!"",""" in gifts and grants in %(x' and that student continue to average ) credit hour each. Bhat
tuition per credit hour must be charged to cause revenues to exceed expenditures by $%!,""" if %,,""" students enroll4
c. ;ssume that SBCC anticipates that gifts and grants will increase by $,,""" over %(x+ levels. Bhat tuition per credit hours must
be charged to brea2 even if %,,""" students enroll, averaging ) credit hours4
d. /epeat part JcK above assuming that ",""" students enroll.
e. Bhat would be the excess of revenues over expenditures assuming that ",""" enroll averaging !.! credit hours each4 State and
city grants are sent $'"",""" and gifts total $%%,""". Tuition is set at $% per hour.
Q.1% ; company produces a single product. =ts fixed cost has been budgeted for annual range of operation of +",""" units to '","""
units. 6et income at this two different points of operation has been presented below.
<nits sold +",""" '","""
Sales revenue /s. +"",""" /s. '"","""
Cost of goods sold and other expense +"",""" +-","""
.rofit before tax 6il +","""
Required:
(a) Bhich sales volume in unit will bring the company a profit of /s. %,,"""4
(b) =f a reduction of !H in the original sales as re0uired in a is made. 5y how much the selling price should be increased to put
the company in brea2 even level4
Q.2& ;t a sales volume of '",""" units a company made a profit of /s. '",""" and at this volume the safety margin ratio would be
!H. Selling price of product was /s. %" per unit.
Required:
a. Total fixed cost of the company
b. 5rea2 even sales volume in /s.
c. Sales volume in units to earn after tax profit of /s. )",""" (tax rate "H)
Q.22. The cost volume profit analysis formula of a manufacturing company showed the following position$ ",""" S. L /s. %)",""" M
/s. %" ",""" M /s. '","""
Company expects an increase in variable cost by "H.
Required: .ercentage increase in selling price to 2eep 51 Sales volumes at original figure.
Q.23 The 5oo2 company published and sold !"""" boo2s. =ts income statement for the current year is given below.
Sales revenue %,!","""
8ess$ Cost of sales
.rime cost !"","""
&actory overhead (/s. %"",""" fixed) !",""" -!","""
Iross .rofit !"","""
8ess$ Salaries %"","""
Commission !","""
;dvertising %"","""
5
/oyalties ()H of sales ) (!,"""
fixed)
%"",""" +!","""
6et income %!","""
Required:
(a) 3ow many boo2s must be sold in order to achieve brea2 even point4
(b) Bhat is the selling price per boo2 is to be maintained to earn /s. "",""" profit4
(c) =f the sales commission is discontinued in exchange for additional salaries of /s. )",""" how many boo2s would have to be
sold in order to earn same amount of net income.
Q.24 5alaGu ;uto wor2 companyAs income statement for the preceding year is given below$
Sales (%"" ;uto /i2sa) %,""","""
*ariable costs )"","""
&ixed costs "",""" ,"","""
15T "","""
8ess$Taxes %"","""
1;T %"","""
Required:
%. 51. in units and /s.
. 3ow many auto /i2sas would have to be sold if fixed cost has been increased by /s. %"",""" for increasing capacity by
)" auto ri2sas4
+. ;t what level of sales will the company be able to maintain its present earning before tax after expansion4
'. Suppose the plant operates at full capacity after expansion, what profit will be earned4
Q 25 &ollowing data is available for a product
*ariable costs per unit /s. !.""
7argin of safety %",""" units
Total fixed costs /s. )","""
&ixed costs per unit /s. .""
Required: Calculate selling price per unit, contribution margin ratio, and brea2 even point in units and in amount, profit or loss at a total
sales volume.
)*+P ,-.V/0'1 /2+3 C.)* /0 CVP A0A45)/)
Q.26 &ollowing information is extracted$
Selling price per unit /s. "
*ariable cost per unit /s. %
&ixed costs$
>epreciation
/ent and /ates
/s. ,","""
/s. ","""
/epairs /s. %",""" for every !,""" units
Supervision /s. %",""" for every %",""" units
Required:
a. 5rea2 even point (in units)
b. Sales units to earn profit of /s.!","""
Q.2# The contribution margin is )"H and the selling price per unit of the product is /s. !". The fixed cost for the year is /s. )",""" for
%,!"" units. The firm will have to spend /s. %",""" for every additional product of %,""" units.
Required:
(i) Calculate brea2 even point in units.
(ii) /e0uired sales in units to earn /s. !",""" profit.
Q.2$ ; manufacturer of special branded goods has recently installed a machine in its production process. The total cost of running the
machine, the annual production volumes, unit selling price and total sales revenues are presented below$
.roduction in units %","""
Sales revenue N /s. %" per unit /s. %"","""
8ess$ *ariable cost N /s. ) per unit /s. )","""
Contribution margin /s. '","""
8ess$ &ixed in total /s. !","""
6et income before tax /s. (%",""")
The companyOs income statement shows a reported loss of /s. %",""" at this installed capacity. =f the company ventures to install one
more similar machine to overcome this state of affairs the production units and sales revenue will be double and similarly the total fixed
cost will also increase by the same amount leaving /s. ",""" unrecovered. 3owever, the company can utili#e some smaller machines
to overcome this difficulty. These machines will produce %""" units each at the same variable cost per unit and will have fixed cost of
/s.""" for each machine.
Required: Bhich production volume in units and in /s. would put the total company at brea29even point4 (<se of one single formula will
be necessary to determine 51. and use of income statement without e0uations shall not be entertained)
6
6R+A7 +V+0 A0A45)/) 803+R -84*/P4+ PR.38C*) A03 R+).8RC+ C.0)*RA/0*)
Q. 2$ . >ata relating to sales mix and other of a multi9proof company have been presented below$
.roduct ; 5 Total
Sales in unit +,""" ,""" !,"""
Sales revenue /s.+",""" /s.+",""" /s.)","""
8ess$ *ariable cost %!,""" ",""" +!,"""
Contribution margin %!,""" %",""" !,"""
8ess$ >epartmental fixed cost !,""" !,""" %","""
7argin for Goint fixed cost %",""" !",""" %!,"""
8ess$ Eoint fixed cost ),"""
6et income before tax (,"""
Required:
a) 5rea2 even sales volume in units
b) .ercentage change in selling price of product 5, when selling price of product ; is reduced by %"H.
c) 5rea2 even sales in units when the sales mix are reversed.
Q. 2% ; Company manufactures and sells two types of products under the brand name of .% and .. The sales mix in value comprises
)"H and '"H respectively. The variable costs of each product are .roduct .% F )"H of the selling price and .roduct . F !"H of the
selling price. The overall fixed cost for the firm is /s. ,,,"". The selling price per unit of .% and . is /s. % and /s. , respectively.
Required:
%. Cverall brea2 even point in /s. at present sales mix
. Sales mix ration in units at present
+. .rofit or loss if sales mix ratio in units revised to %!""$!""
'. The proposed sales mix to earn a profit of /s. !)", with the total sales of two products being ,""" units.
Q.3& Pathmandu 5rewery Company produces 7ineral water, 5eer, soft drin2 and soda water. Sales manager of the company has
proGected total sales of /s. %,"""" for coming month. The share of sales of mineral water, beer, soft drin2 and soda water are %Q+, !Q%,
%Q) and %Q% respectively.
.roduct 7aterials (/s.) 8abour cost (/s.)
7ineral water
5eer
Soft drin2
Soda water
","""
+","""
%","""
+,"""
%),"""
%,"""
%',"""
+,"""
The fixed costs which can not be attributable to each product is estimated /s. ''%""
Required:
a. >etermine the brea2 even sales volume for each product and for the company as a whole.
b. Bhat sales volume would the company brea2 even if the production of soda water is halted and sales mix of %Q', +Q% ad +Q)
for mineral water, beer and soft drin2 respectively are developed in the proGected sales.
Q. 31 ; company produces and sells three products .%, . and .+. Selected data on these products show the following$
.roducts Sales units Selling price .er unit *ariable cost .er unit
.% ),""" /s. ! /s. %!
. (,""" /s. " /s. %"
.+ %!,""" /s. %" /s. '
Total fixed cost /s. %)",""".
Required:
%. Cverall 5rea2 even units.
. Total sales units for earning /s. %"",""" profit
+. /evised 5rea2 even units, if sales mix is changed to %!"""$ ("""$ )""" from )"""$("""$%!""".
Q. 32 The Carrigan Corporation produces three products$ Car, /ig, and Ian. The planned cost and price data are as follows$
Car /ig Ian
Selling price $%."" $".!" $.!"
*ariable cost per unit $.(! $"." $%.,!
&ixed cost per month $!,""" $-,,"" $!,""
Required:
a. >etermine the brea29even point for each product.
b. >etermine the brea29even point for total company, assuming that an e0ual number of units of each product are sold.
Q.33 The Balhers Company produces and sells two products, ; and 5. Selected data on these products show the following$
; 5
Selling .rice $ !."" $ ).""
Total variable costs $ .!" $ !.""
>irect fixed costs $ %!,""" $ %"","""
<nallocated company fixed costs $ !!,"""
Required:
a. =f these products are sold in the ratio of '; to +5, what is the brea29even point4
b. The sales manager as2s you to show the effect on the brea29even point of a change in the sales mix to +; to '5.
7
c. 1xplain to the sales manager which of these two sales mixes should be pushed4
Q.36 ; multiproduct company follows standard sales mixed policy for its product. The reported income and expenditure for the last year
are presented below$
.roduct ; 5 Total
Sales in unit +",""" %",""" '","""
Sales revenue /s.+"",""" /s."",""" /s.!"","""
8ess$ *ariable cost %!",""" %"",""" !","""
Contribution margin %!",""" %"",""" !","""
8ess$ >epartmental fixed cost !",""" !",""" %"","""
Contribution available for Goint fixed cost %"",""" !",""" %!","""
8ess$ Eoint fixed cost !","""
6et income before tax %"","""
Required:
a. Sales volume in units to be at 5rea2 even point.
b. .ercentage increase in the selling price of product ; to 2eep at original brea2 even sales volume if the selling price of product
5 decreases by %!H.
c. 5rea2 even sales volume in units if, standard sales in changed to one unit to one unit.
Q.3# 7QS Thai &ood .roduct produces two different types of instant noodles chic2en and 7ushroom. These two noodles are
manufactured in two departments separately. The financial data relating to these products are presented below$
Chic2en noodles 7ushroom noodles Total
Sales in boxes ",""" %",""" +","""
Sales revenue /s.%,!"",""" /s.-!",""" /s.,!","""
8ess$ Cost of production
*ariable cost ("",""" +"",""" %,"","""
>epartmental fixed cost "",""" !",""" '!","""
%,%"",""" !!",""" %,)!","""
Contribution to Goint fixed cost '"",""" "",""" )"","""
8ess Goint cost %!","""
.rofit before tax '!","""
Required:
a. Calculate 5rea2 even sales volume in units and in rupee
b. ; reduction of /s. %" per boxes in the selling price of chic2en noodles are li2ely (because of fair completion with the coF
producer) and which mix volume would be desirable to maintain same rupee profit4
Q.3% &ollowing information of @ and : products are extracted.
.roduct @ .roduct :
Selling priceQunit $ %" $ %!
*ariable costQunit ' -
C7.< $ ) $ ,
7achine time per unit + hours ) hours
Supervision time per unit hours hours
;ssume that a feasible schedule have total machine hours at most ',""" hours and less than or e0ual to %,""".
3ow much units of @ and : products should be produced to maximi#e the profit using graphic approach of linear programming4
Q.4& ; multi product 7anufacturing Company provides you the following data
.articulars @ : Total
<nits produced and sold ,'"" %,)"" ',"""
Sales revenues /s.,%),""" /s.')",""" /s.%,-),"""
8ess$ *ariable cost$
>irect material N /s. !" per unit +"",""" %)",""" ')","""
>irect labour N /s. %" per hour %(,""" %'',""" ++),"""
T*C '(,""" +"',""" -(),"""
Contribution margin +',""" %!),""" ',","""
8ess$ Separable fixed costs -),""" '',""" %","""
',,""" %%,""" +)","""
8ess$ Eoint fixed cost F F (),"""
6et .rofit before tax )',"""
Required:
(a) Cverall 51. (units)
(b) 51 sales in units if sales mix is changed to one to one
(c) Bhich sales mix should be pushed4
(d) <se linear programming techni0ues to maximi#e profit under constraint given below$
(e) ;vailability of raw material L ,,'"" units
(f) 7aximum labour hours available L +",""" hrs.
Q.41 The furniture industry produces table and chair. The income statement of the company is given below.
8
.roducts >es2 Table Total
<nits produced and sold "" +"" !""
Sales revenues (/s.) (",""" +),""" %),"""
8ess$ *ariable cost$
Bood N /s. +" per s0. ft. '",!"" %+,!"" !',"""
CarpenterAs wages N /s. %.!" per hr. -,""" %+,!"" '",!""
Total variable cost )-,!"" -,""" (',!""
Contribution margin ,!"" (,""" +%,!""
less$ ;llocated fixed costs -,!"" %,!"" (,"""
%!,""" -,!"" ,!""
8ess$ =nseparable fixed costs %","""
6.5T %,!""
The factory expects the insufficient supply of wood and shortage of s2illed carpenters in the year to come. The company proGects the
followings.
Bood ,-" s0. fts.
Carpenter %'%" hrs.
Required:
(a) 51 sales units in total
(b) 51 sales units, if the sales mix of the company reverse
(c) ;dvice to the manager, which of these two sales mix should be pushed
(d) <se the linear programming model to maximi#e profit under constraints
(e) &ind out utili#ation of constraints at optimum level of activity that yield maximum profit.
P 9 42 /adha 5a2ery manufactures and sells two products. 5reads and Ca2es. The following is the income statement of /adha 5a2ery
for the year "").
/n:ome )tatement or t;e year +nded 2&&6
5read Ca2es Total
Sales volume in units !,""" !,""" +","""
Sales revenues
*ariable costs
Contribution margin
&ixed costs
6et profit (loss)
/s. ,"","""
/s. %,!","""
/s. !","""
/s. %,"","""
(/s. !",""")
/s. ,,"","""
/s. ',"","""
/s. ',"","""
/s. ,"","""
/s. ,"","""
/s. %","","""
/s. !,!","""
/s. ',!","""
/s. +,"","""
/s. %,!","""
Required:
(a) Compute the brea2 even for each product and also for the total company.
(b) Selling price of Ca2es is to be reduced by %"H to stabili#e its mar2et share. Bhat parentage change in the selling
price of 5reads is re0uired to earn the same profit as of now4
(c) Bhat mix volume is re0uired to earn a profit of "H on total sales revenue if the selling price of Ca2es is to be
reduced by %"H to stabili#e its mar2et share4
(d) Sales volume of 5reads is li2ely to be reduced by "H during the coming year. Bhat percentage increase in the
selling price of 5reads is re0uired to earn %!H net profit on total sales4
P 9 43 Sagarmatha Trade Concern (STC) is a retailer for 3ar2er pens. The proGected net income for the current year is /s. ,"","""
based on a sales volume of ,"",""" pens. STC has been selling the pen for /s. %) each. The variable costs consist of the /s. %" unit
purchase price of the pen and handling cost of /s. per pen. STCAs fixed costs are /s. ),"",""" per year.
7anagement is planning for the coming year, when it expects that the unit purchase price of the pens will increase +" percent. (=gnore
income tax).
Required:
a) Calculate STCAs brea29even point for the current year in number of pens.
b) Bhat will be the companyAs net income for the current year if there is a %" percent increase in proGected unit sales volume4
c) Bhat volume of sales ( in /s.) must TSC achieve in coming year to maintain the same net income as proGected for the current year if
the unit selling price remains at /s.%)4
d) =n order to cover a +" percent increase in the purchase price for the coming year and still maintain the current contribution9margin
ratio, what selling price per pen must TSC establish for the coming year4
P 9 44 The Sadi2sha 7otors (.) 8td trades on two 2inds of motorbi2e$ Cosmic %"" cc and Cosmic %! cc. The company has gathered
the following information for profit planning purpose.
6i<e ty=e )ales =ri:e Pur:;asin" :osts )ales :ommission
Cosmic %"" cc
Cosmic %! cc
/s. )","""
%"","""
/s. %!,"""
'!,"""
/s. !,"""
!,"""
Sixty percent of the companyAs sales are Cosmic %"" cc bi2es and the rest from the Cosmic %! cc. The companyAs annual fixed costs
expenses are /s. %",!)",""".
Required:
a) Bhat is the companyAs brea2 even point4 ;ssume a constant sales mix.
b) 3ow many motorbi2es of each type must be sold to even a target net income of /s. ",""" per year4
P 9 45 Bhat will be companyAs brea2 even point if sales mix be $+ for Cosmic %"" cc to Cosmic %! cc4
Thai food 8td. produces two different types of food. The financial information regarding these products are given below$
Parti:ulars ood 2 ood 5 *otal
Sales in boxes '",""" ",""" )","""
Sales /evenue '"",""" !",""" )!","""
8ess$ *ariable costs ,",""" %!",""" '+","""
Contribution 7argin %",""" %"",""" +","""
9
8ess$ >epartmental &ixed Costs
Eoint &ixed Costs
'","""
9
+","""
9
-","""
%"","""
6et income before tax %!","""
Required:
a) Bhat sales volume in rupees and units, the company 2eeps the company in brea2 even
b) The company is facing the competition in the mar2et. ;s a result the companies is considering to reduce the
selling price of product : by /s. .! per box and what sales mix volume is desirable to earn same amount of profit.
c) The company desires to earn /s. +"",""" after tax by increasing sales volume of food @. The selling price
of food @ decreases by %"H and the company falls on '"H tax brac2et. Bhat sales volume maintains the desirable profit4
P 9 46 5Iodavary &ood .roducts 8td. produces two brands of can foodsD godavary Pids and Iodavary :oths. 5oth the products are
processed in a machine and then pac2ed manually. The total machine hours available per annum are %),""" and the total man9hours
available per annum are ",""". .roducing one unit of Iodavary Pids re0uires '" machine hours and " man9hours, and one unit of
Iodavary :oths re0uires " machine hours and !" man9hours. The overall production conditions may be summed up as presented
below$
Iodavery Pids Iodavery :ouths
Selling price per unit
*ariable cost unit
;nnual fixed costs are /s.,","""
/s.""
/s.%""
/s.%'"
/s.)"
The firm intends to maximi#e its total profit in the given production conditions. The problem confronted by the firm is to choose an optimal
output9mix of two products that can yield maximum profit.
Required
a) Bhat is the optimal production mix to maximi#e profits4
b) Bhat is the total contribution margin at optimal mix4
c) Bhat is the brea2 even point at optimal production mix4
CVP A0A45)/) 803+R 80C+*A/0*5
Q.4# &ollowing information is provided$
Selling price per unit /s.", *ariable cost per unit /s.%" and ;nnual fixed cost /s.+"","""
&ive different possible happening in the coming year are$
Sales units .robability
)",""" ".%"
!",""" "."
'",""" ".'"
+",""" "."
",""" ".%"
Required:
(a) 7ean value (1xpected value)
(b) Standard >eviation
(c) Bhat is the probability of sales being more than !",""" units
(d) Bhat is the chances of sales being less than +",""" units
(e) Bhat is the probability sales being more than +",""" units
Q.4$ 1verest 7anufacturing Company provides you the following pertinent information$
8i2ely demand units .robability
,"""
,!""
+,"""
+,!""
',"""
".%
".
".+
".+
".%
The fixed cost is expected to be /s. -""". The product will yield the contribution margin of /s. !" per unit for covering the fixed cost
and yielding net income for tax.
Required:
(a) 1xpected demand units and Standard deviation
(b) 1xpected (mean) profit and Standard deviation of profit
(c) .robability of profit being less than #ero
(d) .robability of profit being greater than /s. !","""
(e) .robability of profit less than /s. (!,"""
Q.4% The data relating to a manufacturing company is given
(a) .robability of profit of expected value (7ean) is /s. +(!"
(b) Standard deviation of profit of expected value is /s. %,!"
(c) ; normal distribution of probability is expected.
Required: .robability of profit of expected value being$
(a) 7ore than /s. ',"""
(b) 8ess than /s. ',"""
(c) 5etween the range of /s. ,""" and /s. +,"""
(d) 5etween the range of /s. +,""" and /s. ',"""
(e) 5etween the range of /s. ',""" and /s. !,"""
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