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A Cost Structure of a Company is Expressed by the Following Equation :T = Rs. 30,000 + 0.70x - Cost Accounting(Financial Accounting and Auditing 10)

Question

A cost structure of a Company is expressed by the following equation :
T = Rs. 30,000 + 0.70X
where,
T =Total Cost
X =Sales Value.
CalCulate :
(a) Break-even Point Sales in Rupees.
(b) Profit on the present Sales of 1,200 units @ Rs. 100 per unit.
(c) Margin of Safety in :
(i) Rupee Value, (ii) Units, (iii) As a Percentage of Sales.

Solution

T= 30,000 + 0. 70X
But,  Present Sales = 1,200 x Rs. 100
= Rs. 1,20,000

∴ T =  30,000 + 0.70 x (1,20,000)
∴ = 30,000 + 84,000
= Rs. 1,14,000

∴ Variable Cost = Rs. 84,000 and Fixed Cost = Rs. 30,000
Contribution (C) = Sales (S) - Variable Cost (VC)
=1,20,000 - 84,000
∴  = Rs. 36,000

P/V Ratio = `"C"/"S"xx100`

`=(36,000)/(1,20,000)xx100`

= 30%

(a) Break-even Point Sales (in Rs.) = `"Fixed Cost"/"P/V ratio"`

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

= Rs. 1,00,000

(b) Profit on Present Sales of 1,200 Units @ Rs. 100 per Unit:
∴ Present Sales - Rs. 1,20,000
∴  Profit = Present Sales(-) Total cost
∴ Proflt = Rs. 1,20,000 - Rs. 1,14,00
= Rs. 6,000

(c) (i)Margin of Safety (in f Value) = Actual Sales (-) BEP Sales
= Rs. 1,20,000 (-) Rs. 1,00,000
= Rs. 20,000

(ii) Margin of Safety (in units) :

BEP units `="FC"/"Contribution Per Unit"`

`=(30,000)/(30)`                                                          = 1,000 Units

= Sales Units(-) BEP units

= 1,200 units - 1,000 units

= 200 Units 

(iii) Margin of Safety as a Percentage of Sales :

`=("Total Sales(-) BEP Sales")/("Total Sales")xx100`

`=(1,20,000-1,00,000)/(1,20,000)xx100`

`=(20,000)/(1,20,000)xx100`

= 16.67%

  Is there an error in this question or solution?
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A Cost Structure of a Company is Expressed by the Following Equation :T = Rs. 30,000 + 0.70x Concept: Break-even Point.
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