Question

A factory engaged in producing 'Plastic Buckets' in working to 40% capacity and produces 10,000 buckets p.a.
The present cost break-up for one bucket is as under:

Material	(Rs.) 10
Labour Cost	(Rs.) 3
Overheads	(Rs.) 5( 60% Fixed Cost)
Selling Price	(Rs.) 20 Per Bucket

If it is decided to work the factory at 50% capacity, the selling price falls by 3%. At 90% capacity, the selling price falls by 5% accompanied by the similar fall in the prices of materials. You are required to calculate the profit at 50% and 90% capacity and also calculate the BEP for the same capacity productions.

Answer 1

Statements Showing Profit and Break-even point at different Capacity Levels :

Capacity Levels →	50%		90%
Production (Units) →	12,500		22,500
	Per Unit (Rs.)	Total (Rs.)	Per Unit (Rs.)	Total (Rs.)
(i) Sales	19.40 (20- 0.60)	2,42,500	19.00 (20 - 1)	4,27,500
(ii) variable Costs :
• Materials	10.00	1,25,000	9.50	2,13,750
• Wages	3.00	37,500	3.00	67,500
• Variable Overheads	2.00	25,000	2.00	45,000
Total Variable Costs	15.00	1,87,500	14.50	3,26,250
(iii) Contribution  [(i) - (ii)]	4.40	55,000	4.50	1,01,250
(iv) Fixed Costs		30,000		30,000
(v) Profit [(iii) - (iv)]		25,000		71,250

Break-even Point (Units) At 50% Capacity :

`="Fixed Cost"/"Contribution Per Unit"`

`=("Rs." 30,000)/("Rs." 4.40)`

= 6,818 Units

∴ Sales(Rs.) → = 6,818 Units x Rs. 19.40 Per Unit

= Rs. 1,32,270

Break-even Point (Units) At 90% Capacity : 

`="Fixed Cost"/"Contribution Per Unit"`

`=("Rs." 30,000)/("Rs." 4.50)`

= 6,667 Units

∴ Sales(Rs.) → = 6,667 Units x Rs. 19.00 Per Unit

= Rs. 1,26,673