Question

The budgeted production of Alfa Ltd. is 60,000 units, the Variable cost per unit is Rs.16 and Fixed Cost per unit is Rs. 4. Selling price is to be fixed to fetch a profit of 20% on cost.
(i) Calculate BEP and P/V ratio at budgeted selling price.
(ii) If selling price is reduced by 10%, what will be the BEP and P/V ratio ?
(iii) Company desires 10% increase in budgeted profits at revised selling price mentioned in (ii) above, calculate required Sales volume in units and rupees.

Answer 1

CP	SP	P
100	120	20

12,00,000 [14,40,000]
Total Cost = (60,000 x 16) + (60,000 x 4)
9,60,000 + 2,40,000 = Rs. 12,00,000
S - VC = Contribution
14,40,000 - 16 x 60,000 = Contribution
14,40,000 (-) 9,60,000 = Contribution
∴ Contribution = Rs. 4,80,000

(i) P/V Ratio =`"C"/"S"xx100`

`=(4,80,000)/(14,40,000)xx100`

= 33.33%

BEP = `"FC"/"P/V Ratio"= (4xx60,000)/(33.33%)`

`=(2,40,000)/1xx100/33.33`

= Rs. 7,20,072

(ii) When S.P. is reduced by 10%
Existing Sales Value    Rs.14,40,000
Less: 10% Reduction   Rs. 1,44,000
Revised Selling Price Rs.12,96,000
Contribution = Sales - Variable Cost
∴ Contribution = 12,96,000 - (16 X 60,000)
∴ Contribution = Rs. 12,96,000 - Rs. 9,60,000
∴ Contribution = Rs. 3,36,000

P/V Ratio=`"C"/"S"xx100 = (3,36,000)/(12,96,000)xx100`
= 26% (Approximately)

BEP `="FC"/"P/V Ratio"`

`=("Rs." 2,40,000)/(26%)`

`=(2,40,000)/1xx100/26`

= Rs. 9,23,077

(iii) Budgeted Profit = Rs. 2,40,000
Add : 10% Increase    = Rs. 24,000
Rs. 2,64,000

Sales necessary to earn Profit of Rs. 2,64,000 :

Sales `="FC + Desired Profit"/"P/V Ratio"`

Sales `=(2,40,000 + 2,64,000)/(26%)`

Sales `=(5,04,000')/1xx100/26`

Sales = Rs. 19,38,462
Sales Volume (in Rs.) = Rs. 19,38,462

Sales (Units) `=("Rs." 19,38,462)/(60,000 "units")` = 32 Units (Approx.)