Cost-Volume-Profit Analysis

Part-A Questions
Single Product Break-Even (Basic)
1. Sampson Lodge (SL)
SL had sales of Rs. 9,000,000. The fixed expenses were Rs. 2,400,000 and variable expenses
totaled Rs. 3,600,000.
Calculate:
i. Contribution margin ratio.
ii. Break-even point.
2. Frozen Soup Limited
Normal capacity of Frozen Soup Limited is Rs. 54,000 units and unit selling price is Rs. 7.50.
Related costs are given as under:
Cost item Variable (per Fixed Rs.
unit) Rs.
Direct materials 2.100 -
Direct labour 2.400 -
Factory overhead 0.450 9,000
Non-manufacturing cost 0.075 3,870
Calculate:
i. Break-even point in Rupees and in units and a proof of the answer.
ii. Sales in Rupees required to produce a profit of Rs. 24,750.
3. English Biscuits
The following estimated data is relevant to new product of English Biscuits.
Description Rs. Description Rs.
Sales 450,000 Fixed marketing expenses 35,500
Direct materials 103,100 Variable marketing expenses 40,000
Direct labour 82,600 Fixed administrative expenses 4,750
Fixed factory overhead 85,948 Variable administrative expenses 2,000
Variable factory overhead 51,300
Calculate:
The break-even point in Rupees.
4. Sethi Co
The following data of the Sethi Co are given as under for November:
Plant capacity 2,000 units per month
Fixed cost Rs. 48,000 per annum
Variable cost Rs. 2.50 per unit
Selling price Variable cost plus 100% markup
Calculate:
i. The Break-even point in Rupees.
ii. The Break-even Chart.
5. MIT Enterprises
During the last year, MIT Enterprises produced and sold 20,000 units. The unit sales price was
Rs. 200. Standard and actual costs per unit, based on a production of 20,000 units, were:
Variable cost Rs. 50
Fixed cost Rs. 150
Calculate:
i. Operating income according to the marginal costing.
 ii. Break-even point and Margin of safety ratio at the given sales level.
6. RR Limited
RR Limited has budgeted sales of Rs. 1,000,000, a profit of Rs. 300,000, and fixed expenses of Rs.
200,000.
Calculate:
The contribution margin ratio.
7. NN Limited
The following details relate to product N:
Level of activity (units) 1,000 2,000
(Rs./unit) (Rs./unit)
Direct materials 4.00 4.00
Direct labour 3.00 3.00
Factory overhead 3.50 2.50
Selling overhead 1.00 0.50
Selling price per unit is Rs. 12.00
Calculate:
The Break-even point in amount.

Single Product Break-Even Analysis

8. Crowe Company
From the books and records of the Crowe Company, the cost analyst determined that sales were
Rs. 1,000,000 and costs were as follows:
Description Variable Fixed Cost Total
cost Rs. Rs. Rs.
Direct materials 300,000 - 300,000
Direct labour 300,000 - 300,000
Factory overhead 80,000 50,000 130,000
Marketing expenses 70,000 30,000 100,000
Administrative expenses 50,000 20,000 70,000
The company is considering two alternative proposals that would change certain cost items.
Proposal 1 would increase fixed cost by Rs. 10,000, with sales and variable costs remaining the
same. Proposal 2 would modernize present equipment at an annual increase of fixed costs of Rs.
25,000, with the expectation of saving the same amount in each of the direct materials and
direct labour costs.
Calculate:
i. The current contribution margin ratio.
ii. The current break-even point.
iii. The break-even point and profit, if proposal 1 is adopted.
iv. The C/M ratio, Break-even point and profit, if proposal 2 is adopted.
9. Riasat Sons
The annual budget of the Riasat Sons shows:
Description Rs. Rs.
Sales (80,000 units) 360,000
Fixed production cost 90,000
Fixed marketing and administrative costs 117,900
Variable production cost 85,500
Variable marketing and administrative costs 22,500 315,900
 Profit from operations 44,100
Calculate:
i. The break-even point in units and amount, using the figures given in the budget.
ii. The new break-even point in rupees, assuming that fixed costs increased by Rs. 8,400
and variable costs decreases by 1% of current sales level.
iii. The increase in sales needed to make the same profit, assuming that fixed costs increase
by Rs. 9,750 and variable cost by 1% of current sales level.
iv. The budgeted profit and the new break-even point in sales dollars assuming that the
company revises the annual budget by increasing the unit sales price by 5%, which is
expected to decrease volume by 15%, assuming that other things remaining the same as
given in the original budget.
10. Rajistan Enterprises
The Rajistan Enterprises shows fixed expense of Rs. 243,000, a contribution to sales ratio of 30%,
and Margin of safety ratio of 30% for one quarter’s operations.
Calculate:
i. The break-even point in Rupees
ii. Actual sales
iii. Profit for the month.
11. Mutahir Industries
During the last quarter, Mutahir Industries management report showed sales of Rs. 550,000, a
contribution to sales ratio of 40% and margin of safety ratio of 30%. During the current quarter,
a decrease in sales price and a decrease in fixed costs have resulted in a contribution margin
ratio of 36% and a margin of safety ratio of 24%.
Calculate:
i. The amount sales decreased.
ii. New break-even point
iii. Profit during the current quarter
iv. Decrease in fixed costs.
12. New Era Cables
The income statement of one of the New Era Cables’s products shows:
Description Rs. Rs.
Sales (1,000 units @ Rs. 100 per unit) 1,000,000
Cost of goods sold:
Direct labor 150,000
Direct material 140,000
Variable factory overhead 100,000
Fixed factory overhead 50,000 440,000
Gross profit 560,000
Marketing expenses:
Variable 60,000
Fixed 100,000
Administrative expenses:
Variable 50,000
Fixed 100,000 310,000
Operating income 250,000
Calculate:
i. Break-even point in units.
 ii. Operating income if sales increase by 25%
iii. Break-even point in rupees if fixed factory overhead increases by Rs. 170,000.
13. Lasbela Company
The Lasbela Company manufactures a product LC-15 which sells for Rs. 50 each. At present the
company produces and sells 75,000 units per year. Unit variable manufacturing and marketing
expenses are Rs. 25 and Rs. 5 respectively. Fixed expenses are Rs. 700,000 for factory overhead
and Rs. 300,000 for marketing and administration.
The sales manager has proposed that the price be increased to Rs. 60. To maintain the present
sales volume, advertising must be increased. The company’s profit objective is 14% of sales.
Calculate:
i. The additional expenditure the company can afford for advertising.
ii. The new break-even point in units and amount, keeping in view the proposal of sales
manager.
14. The Coulter Company
The coulter company sold 100,000 units of its product at Rs. 2 per unit. Variable costs are Rs.
1.40 per unit (including non-manufacturing cost of Rs. 0.30). Fixed costs are incurred uniformly
throughout the year and amount to Rs. 79,200 (including manufacturing cost of Rs. 50,000).
Calculate:
i. The break-even point in units and in amounts.
ii. The number of units that must be sold to earn an income of Rs. 6,000 before income
tax.
iii. The number of units that must be sold to earn an after tax income of Rs. 9,000, if the
income tax rate is 40%.
iv. The number of units required to break-even if the labour cost is 50% of variable costs
and 20% of fixed costs, and if there is a 10% increase in wages and salaries.
15. Kent William Company
The management of the Kent William Company is presently thinking about the following
proposals:
Proposal 1: Buy a machine that will reduce the number of production workers, resulting variable
costs will decrease about 25% due to the reduction of direct workers. However, it will increase
fixed costs by Rs. 10,000 due to depreciation.
Proposal 2: Cut the selling price of the product by 10%; it is estimated that volume shall increase
by 20%.
Before these changes were under consideration, the company had experienced the following
costs and prices:
Selling price per unit Rs. 100
Variable cost per unit Rs. 60
Total fixed cost Rs. 30,000
Production and sales 900 units
Calculate:
i. The break-even point in number of units and the profit at current level of production.
ii. The new break-even point in number of units and the profit or loss if proposal 1 is
accepted.
iii. The new break-even point in number of units and the profit or loss if proposal 2 is
accepted.
iv. The new break-even point in number of units and the profit or loss if both proposals are
accepted.
16. Eman Industries
 Eman Industries operates a marginal costing system. For the forthcoming year, variable costs are
budgeted to be 60% of sales value and fixed costs are budgeted to be 10% of sales value.
Eman Industries increases its selling prices by 10%, but if fixed costs, variable cost per unit and
sales volume remain unchanged.
Calculate:
Show the effect on Eman Industries contribution in term of percentage increase or decrease.
17. Nadir & Sons
Nadir & Sons makes leather purses. It has drawn up the following budget for its next financial
period:
Selling price per unit Rs. 14.50
Variable production cost per unit Rs. 4.25
Sales commission 5% of selling price
Fixed production costs Rs. 344,400
Fixed selling and administrative cost Rs. 158,520
Sales 80,000 units
Calculate:
i. The margin of safety ratio.
ii. The marketing manager has indicated that an increase in the selling price to Rs. 15.25
per unit would not affect the number of units sold, provided that the sales commission
is increased to 8% of the selling price. Calculate increase or decrease in number of units
in break-even point.
18. Zahir Limited
Zahir Limited provides a single service to its customers. An analysis of its budget for the year
ending 31 July 2014 shows that in period 4, when the budgeted activity was 10,000 units with a
sales value of Rs. 40 each, the margin of safety was 20%. The budgeted contribution to sales
ratio of the service is 40%.
Calculate:
The budgeted fixed cost in period 4.

Multiple Products Break-Even Analysis

19. Rashid International Hospital
Rashid International Hospital records provide the following patient mix data for the year:
Method of payment Patient Average daily Average daily
mix reimbursement variable cost
Self-pay 20% 120 40
Private insurance 25% 120 40
Medicare 30% 110 40
Medicaid 25% 100 40
The annual fixed cost is Rs. 1,000,000.
Calculate:
i. The composite break-even point in amounts and inpatient days.
ii. The composite break-even point in amounts and inpatient days, if the patient mix were 50%
self-pay and 50% private insurance patients.
20. XY Limited
XY Limited manufactures and sells two products; X and Y. Forecast data for a year are given as
under:
Description Product X Product Y
 Sales (units) 40,000 10,000
Sales price in Rs. 24 16
Variable cost per unit (Rs.) 16 6
Annual fixed costs are estimated at Rs. 182,000.
Calculate:
Break-even point in sales revenue with the current sales mix.
21. RS Limited
RS Limited manufactures and sells two products; R and S. Annual sales are expected to be in the
ratio of 1:3. Total annual sales are planned to be Rs. 504,000. Product R has a contribution to
sales ratio of 40%, whereas that of Product S is 50%. Annual fixed costs are estimated to be Rs.
144,000.
Calculate:
The budgeted break-even sales value (to the nearest Rs. 000)
22. Naveed Sons
Naveed Sons currently sells products Alpha, beta and zeta in equal quantities and at the same
selling price per unit. The contribution to sales ratio for product Alpha is 42%; for product Beta it
is 51% and the total is 48%. If the fixed costs are unaffected by mix and are currently 20% of
sales, and the new product mix of Apha, Beta and Zeta are 40%, 25% and 35% respectively.
Calculate:
New average contribution to sales ratio.
23. Jamil Brothers
Jamil Brothers is engaged in the production and sales of three products i.e. A, B and C. Their
contribution to sales ratio was recorded as 25%, 30% and 15% respectively. The sales mix of
three products is 3:2:5. Monthly fixed cost is estimated at Rs. 210,000.
Calculate:
The break-even point in amounts.
24. XYZ Limited
XYZ Limited produces two products and the following budget applies for 2014:
Description Product X Product Y
Sales price in Rs. 6 12
Variable cost per unit (Rs.) 2 4
Fixed cost apportioned (Rs.) 100,000 200,000
Units sold 70,000 30,000
Calculate:
You are required to calculate the break-even point for each product and the company as a
whole and comment on your findings.
 Part-B Past Papers
1. Haseeb Co. (PIPFA Winter 16 Q 7)
Haseeb Co. manufactures three types of fitness equipment A, B and C. The budgeted sales prices
and volumes for the next year are as follows:
A B C
Selling price Rs. 1,600 1,800 1,400
Units 420 400 380

The standard cost card of each product in Rs. is shown below:

A B C
Material 430 500 360
Labor 220 240 190
Overheads 110 120 95

Labor costs are 60% fixed and 40% variable. General fixed overheads excluding any fixed labor
costs are expected to be Rs.55,000 for the next year.
Required:
(a) Calculate the weighted average contribution to sales ratio for Haseeb Co. 06-Marks
(b) Calculate the margin of safety revenue (in Rs. ) for Haseeb Co. 06-Marks
(c) Explain what would happen to the breakeven point if the products were sold in order of the
most profitable products first. 03-Marks
M/s. Voice Ltd., is a small company, deals in advanced models of cell phone specifically LL 300
and LV 400. The company imports cell phones from China and distribute to retail stores across
the country. Data related to sales and expenses for the month are shown below:
LL 300 LV 400 Total
Sales 20,000 80,000
Variable Expenses 15,000 40,000
Fixed Expenses 27,000
Required:
(i) Calculate multiple product break-even by preparing contribution income statement at given
level of sales. (05-Marks)
(ii) Verify your answer calculated in (i) above by preparing contribution income statement at a
breakeven level of sales. (03-Marks)

2. Amir & Imran (PIPFA Summer 17 Q 2)

Amir & Imran incorporated a company by the name of Amir & Imran (Pvt.) Ltd., to trade in blu-ray
products acquired from the world's leading consumer electronics, personal computer and media
manufacturers (including Apple, Dell, Hitachi, HP, JVC, LG, Mitsubishi, Panasonic, Pioneer, Philips,
Samsung, Sharp, Sony, TDK and Thomson). During the first year of their operations, the projections
prepared showed net income of Rs. 300,000 based on Sale Volume of 300,000 blu-rays products.
The selling price was Rs. 24 each, whereas, the variable cost recorded was Rs. 15 per unit and
handling cost of Rs. 3 per unit. Their fixed cost was Rs. 900,000 for the entire year.
Company is planning to prepare a budget for the coming year and anticipates that unit purchase
price will increase by 30%. All calculations being done are without taking into account the effect of
taxation.
Required:
(i) Calculate Amir & Imran (Pvt.) Ltd's break-even point for the current year in number of units. 03-
Marks
(ii) What will be the company's net income for the coming year if there is a 10% increase in
projected unitsales volume? 03-Marks
(iii) What volume of sales (in rupees) the company must achieve in the coming year to maintain the
same net income as projected for the current year if the unit selling price remains at Rs. 24? 03-
Marks
(iv) In order to cover a 30% increase in the purchase price for the coming year and still maintain the
current contribution-margin ratio, what selling price per unit the company must establish for the
coming year? 06-Marks

3. Serene Foods (PIPFA Winter 17 Q 4)

Serene Foods is a newly incorporated company involved in the production and sale of food
products. One of the products of the company which is always in great demand is Milk Power Packs.
The company has recently employed a management accountant and now wants him to conduct an
analysis of their most popular product. Information that is available is as below:
Budgeted sales 3,600 packs
Fixed cost Rs. 160,000
Sales price Rs. 120 per pack
Variable cost RS. 60 per pack

Required:
a) The contribution margin approach is to be used to compute: 16-Marks
(i) Contribution Margin ratio
(ii) Contribution Margin per unit
(iii) Breakeven point in numbers and value
(iv) Safety Margin in percentage
b) What will be number of packs the company will have to sell in order to earn a target net profit of
Rs. 400,000? Calculate using the equation method. 04-Marks

4. ABC Company (PIPFA Summer 18 Q 4)

ABC Company, is located in Pakistan, and is involved in manufacturing a component used in Farm
Machinery. The company's fixed costs are Rs. 4,000,000 per year. The variable cost of each
component is Rs. 2,000, and the components are sold for Rs. 3,000 each. The company sold 5,000
components during the year.
Required:
a) Compute theBreak-Even Pointin units 04-Marks
b) What will be the new break-even point if fixed costs increase by 10 percent? 04-Marks
c) What was the company's net income for the prior year? 04-Marks
d) The sales manager believes that a reduction in the sales price to Rs. 2,500 will result in orders for
1,200 more components each year. What will the break-even point be if the price is changed? 04-
Marks
e) Should the price change discussed in requirement (d) be made? 04-Marks

5. PQR Limited (PIPFA Winter 18 Q 5)

PQR Ltd., is a manufacturing company whose products are very popular in the market. The most hot
selling products are Alpha and Beta. The company has estimated that total fixed costs are Rs.
1,197,000. The product Alpha is expected to generate a sale revenue of Rs. 1,400,000 and gives a
Contribution Margin of 60%. Whereas, Product Beta will have a sale of Rs. 600,000 and its
contribution margin will be 70%.
Required:
(a) Contribution Margin Income Statement for the company. 10-Marks
(b)Calculate the Break-even Point in rupees. 05-Marks

6. R.A. Ro & Co. (PIPFA Summer 19 Q 2)

R.A. Ro & Co., maker of quality handmade pipes, has experienced a steady growth in sales for the
past five years. However, increased competition has led Mr. Ro, the president, to believe that an
aggressive advertising campaign will be necessary next year to maintain the company’s present
growth.
To prepare for next years’ advertising campaign, the company’s accountant has prepared and
presented Mr. Ro with the following data for the current year, 19X2:
Variable expenses per pipe Rs.
Direct labor 8.00
Direct materials 3.25
Variable overheads 2.50
Total variable expenses 13.75

Fixed Expenses Rs.

Manufacturing 25,000
Selling 40,000
Administrative 70,000
Total fixed expenses 135,000

Rs.
Selling price per pipe 25.00
Expected sales, 19X2 (20,000 units) 500,000
Mr. Ro has set the sales target for 19X3 at a level of Rs. 550,000 (or 22,000 pipes)
Required:
(a) What is the Projected Profit for 19X2? 05-Marks
(b) What is the Breakeven Point for 19X2 in units? 05-Marks
(c) What is the Breakeven Point for 19X2 in Rs? 05-Marks
(d) What will be the Breakeven Point in rupees sales for 19X3 if the additional Rs.11,250 is spent on
advertising? 07-Marks
(e) At a sales level of 22,000 units, what is the maximum amount which can be spent on advertising
if a before tax profit of Rs.100,000 is desired? 03-Marks

7. Rehman Limited (PIPFA Winter 19 Q 6)

Rehman Limited (RL) manufactures a single product namely Beta. Following information pertains to
product Beta for recent year ended 30th June 2018:
Sales revenue Rs. 300 million
Contribution margin 20%
Annual fixed factory overhead cost Rs. 20 million
Annual administrative cost Rs. 25 million
Tax rate 25%
During the next year, which will end on 30th June 2019, the company has projected the following
changes:
 Sale price will increase by 10% but sales volume will decrease by 5%
 Variable cost per unit will increase by 4% due to inflation
 Annual fixed factory overheads cost will increase by 10% due to inflation
Required:
(a) Define Margin of Safety. 02-Marks
(b) Calculate Net Profit before Tax for the year ended 30th June, 2018. 03-Marks
(c) Calculate Net Profit before Tax for the year ended 30th June, 2019. 04-Marks
(d) Calculate Contribution Margin Ratio for the year ended 30th June, 2019. 02-Marks
(e) Calculate Breakeven Sales Revenue for the year ended 30th June, 2019. 02-Marks
(f) Calculate Margin of Safety Ratio (%) for both years? 04-Marks
(g) Calculate Sales Revenue to achieve after tax profit of Rs. 60 million 03-Marks

8. Theory (PIPFA Summer 21 Q 3)

Define and explain the following precisely:
(a) The Break-Even Analysis 03-Marks
(b) The Break-Even Point 03-Marks

9. Pizza Circle (PIPFA Summer 21 Q 4)

Pizza Circle has employed delivery boys having their own motorbikes to deliver Pizzas to the
customers. This home delivery service of Pizza Circle has become very popular & the demand for
home delivery is increasing day by day. Pizzas Circle’s CFO has indicated that their Fixed Costs are Rs.
750,000 p.a. The sale price for home delivery is Rs. 800 and their variable cost come to Rs. 600 per
pizza.
Required:
Using Contribution Margin approach calculate:
(i) Breakeven point in units (Pizza’s) as well as in value. 06-Marks
(ii) Also calculate Contribution Margin Ratio. 04-Marks
(iii) Company wants to earn a target net profit of Rs. 8,250,000. Calculate how many Pizzas the
company must sell to earn this target profit. 05-Marks

10. Orange Products (PIPFA Winter 21 Q 7)

Orange Products sells appliances. One of the company’s products sells for Rs.90 per unit. Variable
expenses areRs.63 per unit and fixed expenses associated areRs.135,000 per month. 10-Marks
Required:
(a) Compute the breakeven point in units and in total sales value.
(b) If the variable expenses per unit increases as a percentage of the selling price will it result in
higher or a lower breakeven point? Why? Assume that the fixed expenses remain unchanged.
(c) At present, the company is selling 8,000 units per month. The sales manager is convinced that a
10% reduction in the selling price will result in a 25% increase in the number of units sold each
month. Prepare two Contribution Income Statements, one under present operating conditions, and
one as operations would appear after the proposed changes. Show both total and per unit data on
your statements.
(d) Refer to the data in (c) above. How many units would have been sold at the new selling price to
yield a minimum Net Operating Income of Rs. 72,000 per month?