ILLUSTRATION 36

The following figures relate to Amit Ltd

Selling price per unit ₹ 40
Direct material per unit. ₹ 12
Direct labor per unit. ₹9
Other variable overheads per unit ₹7
Fixed factory overheads ₹ 3,20,000
Fixed office overheads ₹ 4,30,000
Calculate :
(1) P/V Ratio
(2) Break even sales in units and ₹
(3) Sales to earn profit of ₹ 4,50,000
(4) New break even point in ₹ and unit if total fixed overheads are increased by 15%.
SOLUTION : RS
Selling price (s) 40
Less: Variable Cost
Direct Material 12
Direct Labor 9
Variable Overheads 7 28
Contribution (c) 12

i. P/V Ratio = C *100 = 12 * 100 = 30%

S 40

ii. B.E Sales (in units) = Fixed cost = 7,50,000 = 62,500 units
Contribution per unit 12

B.E Sales (in ₹) = Fixed cost = 7,50,000 = RS.25,00,000

P/V Ratio 30%
iii. Sales Required = Fixed Cost + Desired Profit
P/V Ratio
 = 7,50,000 + 4,50,000
30%
= 12,00,000 = 40,00,000
30%
iv. Present Fixed Overheads = 7,50,000
Add: 15% = 1,12,500
Revised = 8,62,500

New BEP (units) = 8,62,500 = 71,875 units

12

New BEP (RS) = 8,62,500 = RS.28,75,000

30%

Illustration 43
A company is producing an identical product in two factories . The following are the details
in respect of both factories.
Particulars Factory X Factory Y
Selling price per unit (₹) 50 50
Variable cost per unit 40 35
(₹) 2,00,000 3,00,000
Fixed cost (₹) 40,000 30,000
Depreciation included in
above fixed cost (₹) 30,000 20,000
Sales in units 40,000 30,000
Production capacity
(units)

You are required to determine :

(1) Break even point (BEP) each factory individually.
(2) Cash break even point for each factory individually.
(3) BEP for company as a whole, assuming the present product mix is in sales ratio.
(4) Consequences on profit and BEP if product mix is changed to 2:3 and total demand
remain same.
Solution :
Particulars Factory X Factory Y
1. Break-even point: 2,00,000 3,00,000
Fixed cost 50 – 40 50 – 35
Contribution = 20,000 units =20,000 units
2. Cash Break-even Point 2,00,000 – 40,000 3,00,000 – 30,000
 Fixed cost – 10 15
Depreciation =16,000 units =18,000 units
Contribution

3. BEP as a whole = Complete Fixed Cost

Composite Contribution
= Rs 2,00,000 + Rs 3,00,000
10 * 3 + 15 * 2
5 5
= Rs 5,00,000 = 41,667 units
6+6
4. New Sales Mix = 50,000 * 2 = 20,000 of X
5
= 50,000 * 3 = 30,000 of Y
5
Calculation of Composite Contribution = [10 * 2] + [15*3] = 4 + 9 = RS 13
5 5
Consequence of Profit
Particulars Existing Mix New Mix
Contribution 50,000 *12 = 6,00,000 50,000*13 = 6,50,000
Less: Fixed Cost (5,00,000) (5,00,000)
Profit 1,00,000 1,50,000

Increase in Profit = Rs 1,50,000 – Rs 1,00,000 = Rs 50,000

Consequence on BEP
New BEP as a whole = Complete Fixed Cost = 5,00,000 = 38,462 units
Composite Contribution 13
So, BEP reduced by 3205 units (41,667 – 38,462).