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%