B.Com (General) Semester 6 (TYBcom)University of Mumbai
Share

# A Cost Structure of a Company is Expressed by the Following Equation :T = Rs. 30,000 + 0.70x - B.Com (General) Semester 6 (TYBcom) - 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?
Solution A Cost Structure of a Company is Expressed by the Following Equation :T = Rs. 30,000 + 0.70x Concept: Break-even Point.
S