Question

M/s PQR gives following details in respect of a unit of a particular Product :

Particulars	(Rs.)
Selling price	200
Direct material	50
Direct labour	40
Variable expenses	30

Number of units produced and sold in a month of August 2018 are 1,000. Fixed overheads in a month are 30,000.
You are required to calculate for August 2018 ;
(i) P/V Ratio.
(ii) Break even point (in Units).
(iii) Margin of Safety (in Units), Actual Sales (Units) and BEP Sales Units.
(iv) If Selling price is increased by 10%, calculate the Revised Break-even Point (in units) and Margin of Safety.

Answer 1

(i) Calculation of P/V Ratio :
Firstly, we have to find out the Contribution (C)
∴  Contribution (G) = Sales(-) Variable Cost
= Rs. 200(-) Rs. 120(50+40+30)
= Rs. 80 Per Unit

∴ P/V Ratio `= "Contribution (C)"/"Sales (S)"xx100`

`=("Rs." 80)/("Rs." 200)xx100`

= 40%

(ii) B.E.P (in Rs.) `="Fixed Cost (FC)"/"P/V Ratio"`

`=("Rs." 30,000)/(40%)`

= Rs. 75,000

∴ BEP (in Units) `="Fixed Cost (FC)"/"Contribution per Unit"`

`= (30,000)/(80)`

= 375 Units

(iii) Margin-of-Safety (in Units) = Actual Sales (Units) - BEP Sales (Units)

= 1,000 Units - 375 Units

= 625 Units

(iv) Revised BEP (in Units) (If Seiling Price is increased by 10%)
Original S.P = Rs. 200
(+) 10% Rise = Rs. 20
Revised S.P = Rs. 220

∴ ·New Revised Contribution = Revised Sales(-) Variable Cost
= Rs. 220 (-) Rs. 120
= Rs. 100 Per Unitl

Revised BEP (Units)  = `"F.C"/"Revised contribution per Unit"`
`=("Rs." 30,000)/("Rs." 100)`

= 300 Units

Revised MOS (Units) =Actual Sales (Units)-Revised BEP Sales (Units)
= 1,000 Units - 300 Units
= 700 Units