by 1. Numerical Illustration on Break-Even Calculation (In Units)
Problem
A company sells a product at ₹100 per unit. The variable cost per unit is ₹60, and the fixed cost is ₹2,00,000.
Calculate the Break-Even Point (BEP) in units.
Solution
Step 1: Calculate Contribution per Unit
Contribution per Unit = Selling Price − Variable Cost
= ₹100 − ₹60
= ₹40
Step 2: Calculate Break-Even Point
BEP (Units) = Fixed Cost / Contribution per Unit
= ₹2,00,000 / ₹40
Answer
The company must sell 5,000 units to reach the break-even point.
2. Numerical Illustration on Break-Even Calculation (Sales Value)
Problem
A company has:
- Fixed Cost = ₹3,00,000
- P/V Ratio = 30%
Calculate the Break-Even Sales Value.
Solution
BEP (Sales) = Fixed Cost / P/V Ratio
= ₹3,00,000 / 30%
₹3,00,000 /
Answer
The company will break even at ₹10,00,000 of sales.
3. Numerical Illustration on Contribution Margin Analysis
Problem
A company has the following information:
- Sales = ₹8,00,000
- Variable Costs = ₹5,00,000
- Fixed Costs = ₹2,00,000
Calculate:
- Contribution
- Profit
- P/V Ratio
Solution
Contribution
Contribution = Sales − Variable Costs
= ₹8,00,000 − ₹5,00,000
Profit
Profit=Contribution−Fixed Costs
= ₹3,00,000 − ₹2,00,000
P/V Ratio
P/V Ratio = (Contribution / Sales) × 100
= (₹3,00,000 / ₹8,00,000) × 100
Answer
| Particulars | Amount |
|---|---|
| Contribution | ₹3,00,000 |
| Profit | ₹1,00,000 |
| P/V Ratio | 37.5% |
4. Decision-Making Scenario: Make or Buy Decision
Problem
A company requires 10,000 components.
- Cost to manufacture per unit = ₹50
- Purchase price from supplier = ₹55
Solution
Total Manufacturing Cost
10,000 × ₹50 = ₹5,00,000
Total Purchase Cost
10,000×₹55=₹5,50,00010,000 \times ₹55 = ₹5,50,000
Decision
Since manufacturing cost is lower, the company should make the components.
Savings
₹5,50,000 − ₹5,00,000
= ₹50,000
Answer
Manufacturing internally saves ₹50,000.
5. Decision-Making Scenario: Accepting a Special Order
Problem
A company has:
- Selling Price = ₹200 per unit
- Variable Cost = ₹140 per unit
- Special Order Price = ₹170 per unit
- Quantity Ordered = 2,000 units
- Idle Capacity Available.
Solution
Contribution per unit:
₹170 − ₹140 = ₹30
Total Contribution:
= 2,000 × ₹30
Decision
Since the special order generates a positive contribution and idle capacity exists, the order should be accepted.
Answer
Additional profit earned = ₹60,000.
6. Decision-Making Scenario: Product Mix Decision
Problem
A company produces Products A and B.
| Particulars | A | B |
|---|---|---|
| Contribution per Unit | ₹60 | ₹40 |
| Labour Hours Required | 3 | 1 |
Limited labour hours available = 3,000 hours.
Solution
Contribution per Labour Hour
For Product A:
₹60 / 3 = ₹20
For Product B:
₹40 / 1 = ₹40
Decision
Since Product B gives a higher contribution per labour hour, the company should give priority to Product B.
7. Decision-Making Scenario: Shut Down Decision
Problem
- Contribution = ₹4,00,000
- Avoidable Fixed Costs = ₹3,00,000
Solution
Since:
₹4,00,000 > ₹3,00,000
The contribution exceeds avoidable fixed costs.
Decision
The company should continue operations.
If contribution falls to ₹2,00,000:
₹2,00,000 < ₹3,00,000
The company should temporarily shut down operations.
8. Decision-Making Scenario: Margin of Safety
Problem
- Actual Sales = ₹12,00,000
- Break-Even Sales = ₹9,00,000
Solution
Margin of Safety = Actual Sales − Break – Even Sales
= ₹12,00,000 − ₹9,00,000
Margin of Safety Ratio
(₹3,00,000 / ₹12,00,000) × 100
Answer
- Margin of Safety = ₹3,00,000
- Margin of Safety Ratio = 25%
