Total Cost Statement

Computation of Machine Hour rate Power cost per hour 20 Operator cost per hour 45 Annual repairs 40000 Depreciation 25000 Insurance 15000 Estimate number of hours 5000 Compute the Machine hour rate

Material cost Labour cost Overheads 5 hours Overhead cost Total cost Profit margin(5%) Price

Total Cost Statement 150 200

Fixed cost Variable cost per unit Number of Units 500 1000 2000

32000 14 Total fixed Unit Fixed Unit Variable Total cost cost cost cost per unit 32000 64 14 78 32000 32 14 46 32000 16 14 30

Unit Selling Price Unit variable cost Fixed cost Volume Contribution per unit Contribution/sales BEP(Units) BEP(value) Sales to earn 40000 profit Profit at 800 units Sensitivity analysis 1 Fixed cost 14000 16000 20000 25000 30000

100 60 12000 40 40% 300 30000 1300 20000 Sensitivity Analysis 2 BE Units
300 600 480 400 343 240

BE Units 300 Selling price 350 80 400 85 500 90 625 95 750 110

Sensitivity Analysis 3
300

80
700 800 1000 1250 1500 560 640 800 1000 1200

85
467 533 667 833 1000

90

95
400 457 571 714 857

14000 16000 20000 25000 30000

110
280 320 400 500 600

Introduction to Breakeven analysis Selling price 100 Per unit Expected sale 1000 Units Variable cost 50 Per unit Fixed cost 40000

Marginal cost method Units Price Total Sales 1000 100 100000 Variable cost 1000 50 50000 Contribution 1000 50 50000 Fixed cost 40000 Profit 10000 Contribution/sales ratio 0.5 Breakeven point(units) 800 Breakevenpoint(value) 80000 Sales to earn 40000 profit 160000

Activity on Breakeven analysis From the following data, determine the break even point and margin of safety Year-1 Year-2 Year-3 Expense type Sales 111.20 133.45 175.68 Rawmaterials 39.55 43.50 49.11 v Energy 26.14 30.81 35.35 v Other variable expenses 0.56 0.35 0.54 v Indirect taxes 6.68 10.00 12.11 v Salaries&wages 10.30 12.85 16.74 f Marketing 4.22 3.61 6.49 f Distribution 3.62 5.08 4.55 f Repairs and Maintenance 2.78 4.24 5.36 f Other fixed expenses 5.69 5.82 6.37 f Interest 2.98 2.98 5.80 f Depreciation 1.80 2.37 5.98 f Year-1 Sales Less Variable cost Rawmaterials Energy Other variable expenses Indirect taxes Total variable cost Contribution Less Fixed cost Salaries&wages Marketing Distribution Repairs and Maintenance Other fixed expenses Total fixed cost Profit Contribution/Sales Breakeven point Margin of safety Year-2 Year-3

Selling price Variable cost Capacity[units] Total Sales[value] Fixed cost Contribution[units] Total contribution Fixed cost Profit Contribution[Margin] Breakeven point

Product 1 Product 2 Product 3 Product 4 Total 100 170 130 140 60 120 65 112 1050 1100 1600 1700 100000

100000

A company manufactures two products in equal volume. The fixed costs are Rs.20000 while the contribution is Rs.6 per unit for product A and Rs.4 per unit for product B. Of the two services which one will be preferred in financial terms if (a) sales is the critical factor (b) Staff hours is the critical factor-8000 hours available, product A consumes 2 hours and B consumes 1 hour.

osts are Rs.20000 for product B.

onsumes 2 hours and

A section with in a public sector unit produces 10000 units and the costs are shown below: Variable cost 8 Depreciation 3 Administration charges 6 Salary costs 3 Total 20 An outside supplier offers the same product at Rs15, an apparent saving of Rs. 5. The question is whether to discontinue the in-house production and outsource. What is your decision?

Relevant cost for decision making You are a marketing manager, earning 25000 dollars per annum in a large organization. You have been considering leaving and setting up as an independent marketing consultant. You would use your home PC for your business. You currently pay 250 dollars a year under a PC maintenance contract, and this would continue. Over the past three months you have paid 2000 dollars to the local university to undertake a feasibility survey. The survey report indicates that over the next three years the consultancy could earn about 100000 dollars in fees, incurring about 20000 dollars direct expenses. The report also concludes that you would need to invest about 30000 dollars capital into the consultancy.You have 30000 dollars that is currently earning 10 percent per annum in a bank account Determine whether or not it is worthwhile proceeding.