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Long Type Questions - Business Arithmetic, Entrepreneurship, Class 12 | Additional Study Material for Commerce PDF Download

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 Page 1


 
    
     
 Net Profit Ratio = Net Profit before taxes   
  Sales turnover   
 It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate 
 of return on sales. It enables to measure the overall efficiency of business. While comparing with the last year’s 
 ratio, if it increases, it is treated as an improvement in overall efficiency of the business. 3  
Q. 9. What is Margin of Safety ? How is it calculated ?   
 
Ans. The Margin of Safety in profit analysis means the excess of actual sales over the B.E.P. sales. It can be expressed 
 
in rupees or in other quantity unit or as a ratio.  
 
Margin of Safety = Actual Sales – B.E.P. Sales  
 
Or MOS = 
Profit  
3 
 
P/V ratio 
 
  
 
Q. 10. What is Break Even Points ? Why should an entrepreneur know about BEP ?  
 
 
Ans. The business break even when its value is equal to its total cost. The Break Even Point (BEP) is the sales volume 
at which there is neither profit nor loss, cost being equal to revenue. Break Even Point is a neutral point. Sales 
below this point show loss and sales above of this point show profit. It is the relationship among cost of 
production, volume of production, profit and the sales value. 
 
The entrepreneur should know B.E.P. as it helps in : 
 
(i) Forecast : He can forecast about profit fairly and accurately.  
 
(ii) Cost estimation : He can ascertain costs, sales & profits at different levels of activity.  
 
(iii) Price Policy : For taking decision regarding price policy. 4 
Q. 11. What does total cost include ?  
 
Ans. Total cost includes variable costs and fixed costs. Variable costs vary directly with the level of output. It includes the 
expenditure on raw materials, transportation, etc. Fixed costs are not dependent on the level of output. 
 
 These are period costs. They include interest, rent, salary of permanent workers, etc. 3 
 
Q. 12. Write unit of sale in each case.       
 
           
 Business   Items sold/serviced  Unit of sale    
 
 Garment shop   T-shirt ?    
 
           
 Textile shop   Fabric ?    
 
           
 Restaurant   Food items ?    
 
           
Ans.       
 
         
 Business  Items sold/serivced  Unit of Sale   
 
 Garment shop  T-shirt  Customers   
 
         
 Textile shop  Fabric  Customers   
 
         
 Restaurant  Food items  Dinner   
 
         
3 
 
         
 
 
Q. 13. Is Break-even Analysis useful to achieve the target level of profit ? 
 
Ans. Yes, Break-even Analysis is useful to achieve target level of profit. Organizations identify those products which 
yield the highest contribution. Break-even Analysis helps the firm in selecting and ranking those products, 
 
based on contribution, to achieve the targeted level of profit. 4 
  
LONG ANSWER TYPE QUESTIONS [5-6 Marks] 
  
 
Q. 1. Find out break-even point from the following information :  
 
(a) Fixed Cost = ` 40,000/-  
 
 Variable Cost = ` 2 per unit 
 Sales Price = ` 4 per unit 
(b) Fixed Cost = ` 1,00,000/- 
 
Variable Cost per unit = ` 5 
 
Sales Price per unit = ` 10 
 
(i) Determine BEP.  
 
(ii) What is the BEP if Sales Price is reduced by 10% ?  
Page 2


 
    
     
 Net Profit Ratio = Net Profit before taxes   
  Sales turnover   
 It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate 
 of return on sales. It enables to measure the overall efficiency of business. While comparing with the last year’s 
 ratio, if it increases, it is treated as an improvement in overall efficiency of the business. 3  
Q. 9. What is Margin of Safety ? How is it calculated ?   
 
Ans. The Margin of Safety in profit analysis means the excess of actual sales over the B.E.P. sales. It can be expressed 
 
in rupees or in other quantity unit or as a ratio.  
 
Margin of Safety = Actual Sales – B.E.P. Sales  
 
Or MOS = 
Profit  
3 
 
P/V ratio 
 
  
 
Q. 10. What is Break Even Points ? Why should an entrepreneur know about BEP ?  
 
 
Ans. The business break even when its value is equal to its total cost. The Break Even Point (BEP) is the sales volume 
at which there is neither profit nor loss, cost being equal to revenue. Break Even Point is a neutral point. Sales 
below this point show loss and sales above of this point show profit. It is the relationship among cost of 
production, volume of production, profit and the sales value. 
 
The entrepreneur should know B.E.P. as it helps in : 
 
(i) Forecast : He can forecast about profit fairly and accurately.  
 
(ii) Cost estimation : He can ascertain costs, sales & profits at different levels of activity.  
 
(iii) Price Policy : For taking decision regarding price policy. 4 
Q. 11. What does total cost include ?  
 
Ans. Total cost includes variable costs and fixed costs. Variable costs vary directly with the level of output. It includes the 
expenditure on raw materials, transportation, etc. Fixed costs are not dependent on the level of output. 
 
 These are period costs. They include interest, rent, salary of permanent workers, etc. 3 
 
Q. 12. Write unit of sale in each case.       
 
           
 Business   Items sold/serviced  Unit of sale    
 
 Garment shop   T-shirt ?    
 
           
 Textile shop   Fabric ?    
 
           
 Restaurant   Food items ?    
 
           
Ans.       
 
         
 Business  Items sold/serivced  Unit of Sale   
 
 Garment shop  T-shirt  Customers   
 
         
 Textile shop  Fabric  Customers   
 
         
 Restaurant  Food items  Dinner   
 
         
3 
 
         
 
 
Q. 13. Is Break-even Analysis useful to achieve the target level of profit ? 
 
Ans. Yes, Break-even Analysis is useful to achieve target level of profit. Organizations identify those products which 
yield the highest contribution. Break-even Analysis helps the firm in selecting and ranking those products, 
 
based on contribution, to achieve the targeted level of profit. 4 
  
LONG ANSWER TYPE QUESTIONS [5-6 Marks] 
  
 
Q. 1. Find out break-even point from the following information :  
 
(a) Fixed Cost = ` 40,000/-  
 
 Variable Cost = ` 2 per unit 
 Sales Price = ` 4 per unit 
(b) Fixed Cost = ` 1,00,000/- 
 
Variable Cost per unit = ` 5 
 
Sales Price per unit = ` 10 
 
(i) Determine BEP.  
 
(ii) What is the BEP if Sales Price is reduced by 10% ?  
 
   
 
Ans. (i) 
 
 
 
 
 
 
 
(b) 
 
 
 
 
 
 
 
 
 
 
(ii) (a) 
 
 
B.E.P. (in units) = 
F 
 
Contribution per unit 
 
 
= ` 40,000 / ` 4 – ` 2  
 
= 20,000 units  
 
B.E.P. (in `) = 20,000 × ` 4    
 
 
= ` 80,000/- 
    
 
BEP = 
 F      
 
 
C 
     
       
 
C = S – V     
 
B.E.P. = 
`100,000 
= 
`100,000 
 
 
 
`10 - `5 
    
 
`5 
  
     
 
 
= 20,000 units 
   
 
B.E.P. (in `) = 20,000 × ` 10 
  
 
 
= ` 2,00,000 
    
 
New selling price = ` 4 – (10% of ` 4) 
 
 
= ` 3.60 
    
 
B.E.P. (Units) = 
40,000 
   
 
` 4 - (10% of ` 4) 
 
 = 25,000 units    
 
B.E.P. (in rupees ) = 25,000 × ` 3.60 = ` 90,000 
 
 
(b) B.E.P. at reduced Selling Price by 10%     
 
Selling Price is ` 10/- reduction by 10% means Selling Price is now ` 9/-  
 
Contribution = S – V=9 – 5  
 
 = ` 4/-   
 
B.E.P. (in units) = 
FC 
 
 
Contribution   
 
 = ` 1,00,000/4   
 
 = 25,000 units  
 
B.E.P. (in `) = 25,000 × ` 9 = ` 2,25,000 6 
 
 
Q. 2. The United Company manufactures three products Lipsticks, Eyeliners, Nailpaints. The variable 
expenses and sales price of all these products are given below :  
 
 Lipsticks Eyeliners Nailpaints 
    
Sales price per unit ` 200 ` 100 ` 50 
    
Variable cost per unit ` 100 ` 75 ` 25 
    
 
The total fixed expenses of the company are ` 50,000 per month. For the coming month, it expects the 
sale of three products in the following ratio : 
 
Product X : 20%  Product Y : 50 % 
 
Product Z : 70 % 
 
Compute the break-even point of the company in units and rupees for the coming months. (SQP)  
Ans. Contribution per unit for each product : 
Product Lipsticks Eyeliners Nailpaints 
 (`) (`) (`) 
Sale price p.u. 200 100 50 
    
Variable cost p.u. 100 75 25 
    
Contribution 100 25 25 
    
Page 3


 
    
     
 Net Profit Ratio = Net Profit before taxes   
  Sales turnover   
 It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate 
 of return on sales. It enables to measure the overall efficiency of business. While comparing with the last year’s 
 ratio, if it increases, it is treated as an improvement in overall efficiency of the business. 3  
Q. 9. What is Margin of Safety ? How is it calculated ?   
 
Ans. The Margin of Safety in profit analysis means the excess of actual sales over the B.E.P. sales. It can be expressed 
 
in rupees or in other quantity unit or as a ratio.  
 
Margin of Safety = Actual Sales – B.E.P. Sales  
 
Or MOS = 
Profit  
3 
 
P/V ratio 
 
  
 
Q. 10. What is Break Even Points ? Why should an entrepreneur know about BEP ?  
 
 
Ans. The business break even when its value is equal to its total cost. The Break Even Point (BEP) is the sales volume 
at which there is neither profit nor loss, cost being equal to revenue. Break Even Point is a neutral point. Sales 
below this point show loss and sales above of this point show profit. It is the relationship among cost of 
production, volume of production, profit and the sales value. 
 
The entrepreneur should know B.E.P. as it helps in : 
 
(i) Forecast : He can forecast about profit fairly and accurately.  
 
(ii) Cost estimation : He can ascertain costs, sales & profits at different levels of activity.  
 
(iii) Price Policy : For taking decision regarding price policy. 4 
Q. 11. What does total cost include ?  
 
Ans. Total cost includes variable costs and fixed costs. Variable costs vary directly with the level of output. It includes the 
expenditure on raw materials, transportation, etc. Fixed costs are not dependent on the level of output. 
 
 These are period costs. They include interest, rent, salary of permanent workers, etc. 3 
 
Q. 12. Write unit of sale in each case.       
 
           
 Business   Items sold/serviced  Unit of sale    
 
 Garment shop   T-shirt ?    
 
           
 Textile shop   Fabric ?    
 
           
 Restaurant   Food items ?    
 
           
Ans.       
 
         
 Business  Items sold/serivced  Unit of Sale   
 
 Garment shop  T-shirt  Customers   
 
         
 Textile shop  Fabric  Customers   
 
         
 Restaurant  Food items  Dinner   
 
         
3 
 
         
 
 
Q. 13. Is Break-even Analysis useful to achieve the target level of profit ? 
 
Ans. Yes, Break-even Analysis is useful to achieve target level of profit. Organizations identify those products which 
yield the highest contribution. Break-even Analysis helps the firm in selecting and ranking those products, 
 
based on contribution, to achieve the targeted level of profit. 4 
  
LONG ANSWER TYPE QUESTIONS [5-6 Marks] 
  
 
Q. 1. Find out break-even point from the following information :  
 
(a) Fixed Cost = ` 40,000/-  
 
 Variable Cost = ` 2 per unit 
 Sales Price = ` 4 per unit 
(b) Fixed Cost = ` 1,00,000/- 
 
Variable Cost per unit = ` 5 
 
Sales Price per unit = ` 10 
 
(i) Determine BEP.  
 
(ii) What is the BEP if Sales Price is reduced by 10% ?  
 
   
 
Ans. (i) 
 
 
 
 
 
 
 
(b) 
 
 
 
 
 
 
 
 
 
 
(ii) (a) 
 
 
B.E.P. (in units) = 
F 
 
Contribution per unit 
 
 
= ` 40,000 / ` 4 – ` 2  
 
= 20,000 units  
 
B.E.P. (in `) = 20,000 × ` 4    
 
 
= ` 80,000/- 
    
 
BEP = 
 F      
 
 
C 
     
       
 
C = S – V     
 
B.E.P. = 
`100,000 
= 
`100,000 
 
 
 
`10 - `5 
    
 
`5 
  
     
 
 
= 20,000 units 
   
 
B.E.P. (in `) = 20,000 × ` 10 
  
 
 
= ` 2,00,000 
    
 
New selling price = ` 4 – (10% of ` 4) 
 
 
= ` 3.60 
    
 
B.E.P. (Units) = 
40,000 
   
 
` 4 - (10% of ` 4) 
 
 = 25,000 units    
 
B.E.P. (in rupees ) = 25,000 × ` 3.60 = ` 90,000 
 
 
(b) B.E.P. at reduced Selling Price by 10%     
 
Selling Price is ` 10/- reduction by 10% means Selling Price is now ` 9/-  
 
Contribution = S – V=9 – 5  
 
 = ` 4/-   
 
B.E.P. (in units) = 
FC 
 
 
Contribution   
 
 = ` 1,00,000/4   
 
 = 25,000 units  
 
B.E.P. (in `) = 25,000 × ` 9 = ` 2,25,000 6 
 
 
Q. 2. The United Company manufactures three products Lipsticks, Eyeliners, Nailpaints. The variable 
expenses and sales price of all these products are given below :  
 
 Lipsticks Eyeliners Nailpaints 
    
Sales price per unit ` 200 ` 100 ` 50 
    
Variable cost per unit ` 100 ` 75 ` 25 
    
 
The total fixed expenses of the company are ` 50,000 per month. For the coming month, it expects the 
sale of three products in the following ratio : 
 
Product X : 20%  Product Y : 50 % 
 
Product Z : 70 % 
 
Compute the break-even point of the company in units and rupees for the coming months. (SQP)  
Ans. Contribution per unit for each product : 
Product Lipsticks Eyeliners Nailpaints 
 (`) (`) (`) 
Sale price p.u. 200 100 50 
    
Variable cost p.u. 100 75 25 
    
Contribution 100 25 25 
    
 
       
 
             
 Calculation of weighted average contribution p.u.      
 
            
  Product Contribution   Weight  Weighted Avg.   
 
   
P.U.(`) 
  
(%) 
 Cont. p.u. (`)  
 
            
  Lipstick 100   20   20.00   
 
               
  Eyliner 25   50   12.50   
 
               
  Nailpaint 25   70   17.50   
 
               
       Total   50.00   
 
              
    
= ` 40 
       
 
 
Break-even point of sales mix (in units) = 
 Total fixed cost      
 
 Weighted Average Cont. p.u. 
 
    
= 
` 5,000 
       
 
    
` 50 
        
            
 
    
= 1,000 units 
     
 
 Products break-even points in units :           
 
   Lipsticks = 1,000 units × 20% = 200 units 
 
   Eyeliner = 1,000 units × 50% = 500 units 
 
   Nailpaints = 1,000 units × 70% = 700 units 
 
 Break-even point in rupees :            
 
   Lipsticks = 200 units × ` 200 = ` 40,000     
 
   Eyeliners = 500 units × ` 100 = ` 50,000     
 
   Nail Paints = 700 units × ` 50 = ` 35,000 6  
 
 
Q. 3. How will you calculate B.E.P. ? 
 
Ans. At the B.E.P. the revenue equals the cost. The formula for compating B.F.P. is simple. 
 
 Total Revenue (R) = Price (P) × Number of units sold (Q) 
 
 Total Cost (C) = Fixed cost (F) + Q × Variable cost per unit (V) 
 
By difinition, BEP         
 
 R = C or P × Q = F + Q × V  
 
 
BEP of output = 
FC 
  
 
 Contribution per unit  
 
 
Contribution = Selling price – Variable cost 
 
 
 BEP on sales = Fixed cost × Selling price per unit 
 
   Contribution per unit  
 
 
BEP = Fixed cost 
 
 
   P/V Ratio  
 
 
P/V Ratio = 
Contribution 
  
 
 Selling price per unit  
 
 
BEP = 
Contribution 
  
 
 Contribution ratio %  
 
 
Contribution Ratio = Selling price - Marginal cost 
 
 
   Selling price  
 
 Marginal Cost = Total variable cost  
 
Or  
= Total cost – fixed cost 
 
 
  
= Direct material + Direct labour + Direct expenses + Variable 
 
        Overhead 
 
Or B.E.P. = 
Fixed cost × Sales  
6 
 
Sales - Variable cost 
 
    
 
Page 4


 
    
     
 Net Profit Ratio = Net Profit before taxes   
  Sales turnover   
 It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate 
 of return on sales. It enables to measure the overall efficiency of business. While comparing with the last year’s 
 ratio, if it increases, it is treated as an improvement in overall efficiency of the business. 3  
Q. 9. What is Margin of Safety ? How is it calculated ?   
 
Ans. The Margin of Safety in profit analysis means the excess of actual sales over the B.E.P. sales. It can be expressed 
 
in rupees or in other quantity unit or as a ratio.  
 
Margin of Safety = Actual Sales – B.E.P. Sales  
 
Or MOS = 
Profit  
3 
 
P/V ratio 
 
  
 
Q. 10. What is Break Even Points ? Why should an entrepreneur know about BEP ?  
 
 
Ans. The business break even when its value is equal to its total cost. The Break Even Point (BEP) is the sales volume 
at which there is neither profit nor loss, cost being equal to revenue. Break Even Point is a neutral point. Sales 
below this point show loss and sales above of this point show profit. It is the relationship among cost of 
production, volume of production, profit and the sales value. 
 
The entrepreneur should know B.E.P. as it helps in : 
 
(i) Forecast : He can forecast about profit fairly and accurately.  
 
(ii) Cost estimation : He can ascertain costs, sales & profits at different levels of activity.  
 
(iii) Price Policy : For taking decision regarding price policy. 4 
Q. 11. What does total cost include ?  
 
Ans. Total cost includes variable costs and fixed costs. Variable costs vary directly with the level of output. It includes the 
expenditure on raw materials, transportation, etc. Fixed costs are not dependent on the level of output. 
 
 These are period costs. They include interest, rent, salary of permanent workers, etc. 3 
 
Q. 12. Write unit of sale in each case.       
 
           
 Business   Items sold/serviced  Unit of sale    
 
 Garment shop   T-shirt ?    
 
           
 Textile shop   Fabric ?    
 
           
 Restaurant   Food items ?    
 
           
Ans.       
 
         
 Business  Items sold/serivced  Unit of Sale   
 
 Garment shop  T-shirt  Customers   
 
         
 Textile shop  Fabric  Customers   
 
         
 Restaurant  Food items  Dinner   
 
         
3 
 
         
 
 
Q. 13. Is Break-even Analysis useful to achieve the target level of profit ? 
 
Ans. Yes, Break-even Analysis is useful to achieve target level of profit. Organizations identify those products which 
yield the highest contribution. Break-even Analysis helps the firm in selecting and ranking those products, 
 
based on contribution, to achieve the targeted level of profit. 4 
  
LONG ANSWER TYPE QUESTIONS [5-6 Marks] 
  
 
Q. 1. Find out break-even point from the following information :  
 
(a) Fixed Cost = ` 40,000/-  
 
 Variable Cost = ` 2 per unit 
 Sales Price = ` 4 per unit 
(b) Fixed Cost = ` 1,00,000/- 
 
Variable Cost per unit = ` 5 
 
Sales Price per unit = ` 10 
 
(i) Determine BEP.  
 
(ii) What is the BEP if Sales Price is reduced by 10% ?  
 
   
 
Ans. (i) 
 
 
 
 
 
 
 
(b) 
 
 
 
 
 
 
 
 
 
 
(ii) (a) 
 
 
B.E.P. (in units) = 
F 
 
Contribution per unit 
 
 
= ` 40,000 / ` 4 – ` 2  
 
= 20,000 units  
 
B.E.P. (in `) = 20,000 × ` 4    
 
 
= ` 80,000/- 
    
 
BEP = 
 F      
 
 
C 
     
       
 
C = S – V     
 
B.E.P. = 
`100,000 
= 
`100,000 
 
 
 
`10 - `5 
    
 
`5 
  
     
 
 
= 20,000 units 
   
 
B.E.P. (in `) = 20,000 × ` 10 
  
 
 
= ` 2,00,000 
    
 
New selling price = ` 4 – (10% of ` 4) 
 
 
= ` 3.60 
    
 
B.E.P. (Units) = 
40,000 
   
 
` 4 - (10% of ` 4) 
 
 = 25,000 units    
 
B.E.P. (in rupees ) = 25,000 × ` 3.60 = ` 90,000 
 
 
(b) B.E.P. at reduced Selling Price by 10%     
 
Selling Price is ` 10/- reduction by 10% means Selling Price is now ` 9/-  
 
Contribution = S – V=9 – 5  
 
 = ` 4/-   
 
B.E.P. (in units) = 
FC 
 
 
Contribution   
 
 = ` 1,00,000/4   
 
 = 25,000 units  
 
B.E.P. (in `) = 25,000 × ` 9 = ` 2,25,000 6 
 
 
Q. 2. The United Company manufactures three products Lipsticks, Eyeliners, Nailpaints. The variable 
expenses and sales price of all these products are given below :  
 
 Lipsticks Eyeliners Nailpaints 
    
Sales price per unit ` 200 ` 100 ` 50 
    
Variable cost per unit ` 100 ` 75 ` 25 
    
 
The total fixed expenses of the company are ` 50,000 per month. For the coming month, it expects the 
sale of three products in the following ratio : 
 
Product X : 20%  Product Y : 50 % 
 
Product Z : 70 % 
 
Compute the break-even point of the company in units and rupees for the coming months. (SQP)  
Ans. Contribution per unit for each product : 
Product Lipsticks Eyeliners Nailpaints 
 (`) (`) (`) 
Sale price p.u. 200 100 50 
    
Variable cost p.u. 100 75 25 
    
Contribution 100 25 25 
    
 
       
 
             
 Calculation of weighted average contribution p.u.      
 
            
  Product Contribution   Weight  Weighted Avg.   
 
   
P.U.(`) 
  
(%) 
 Cont. p.u. (`)  
 
            
  Lipstick 100   20   20.00   
 
               
  Eyliner 25   50   12.50   
 
               
  Nailpaint 25   70   17.50   
 
               
       Total   50.00   
 
              
    
= ` 40 
       
 
 
Break-even point of sales mix (in units) = 
 Total fixed cost      
 
 Weighted Average Cont. p.u. 
 
    
= 
` 5,000 
       
 
    
` 50 
        
            
 
    
= 1,000 units 
     
 
 Products break-even points in units :           
 
   Lipsticks = 1,000 units × 20% = 200 units 
 
   Eyeliner = 1,000 units × 50% = 500 units 
 
   Nailpaints = 1,000 units × 70% = 700 units 
 
 Break-even point in rupees :            
 
   Lipsticks = 200 units × ` 200 = ` 40,000     
 
   Eyeliners = 500 units × ` 100 = ` 50,000     
 
   Nail Paints = 700 units × ` 50 = ` 35,000 6  
 
 
Q. 3. How will you calculate B.E.P. ? 
 
Ans. At the B.E.P. the revenue equals the cost. The formula for compating B.F.P. is simple. 
 
 Total Revenue (R) = Price (P) × Number of units sold (Q) 
 
 Total Cost (C) = Fixed cost (F) + Q × Variable cost per unit (V) 
 
By difinition, BEP         
 
 R = C or P × Q = F + Q × V  
 
 
BEP of output = 
FC 
  
 
 Contribution per unit  
 
 
Contribution = Selling price – Variable cost 
 
 
 BEP on sales = Fixed cost × Selling price per unit 
 
   Contribution per unit  
 
 
BEP = Fixed cost 
 
 
   P/V Ratio  
 
 
P/V Ratio = 
Contribution 
  
 
 Selling price per unit  
 
 
BEP = 
Contribution 
  
 
 Contribution ratio %  
 
 
Contribution Ratio = Selling price - Marginal cost 
 
 
   Selling price  
 
 Marginal Cost = Total variable cost  
 
Or  
= Total cost – fixed cost 
 
 
  
= Direct material + Direct labour + Direct expenses + Variable 
 
        Overhead 
 
Or B.E.P. = 
Fixed cost × Sales  
6 
 
Sales - Variable cost 
 
    
 
 
   
   
   
 
Q. 4. A factory is engaged in manufacturing plastic buckets. The following information is available to 
you : Sales = ` 1,00,000  
Direct labour cost (1,000 units) = ` 10,000 
Direct material cost (1,000 units) = ` 25,000 
Direct expenses (1,000 units) = ` 5,000  
 
Fixed cost = ` 30,000 
 
Find out : (i) Variable cost per unit, (ii) Total cost, (iii) BEP. 
 
Ans. (i) Variable cost = Direct labour cost + Direct material cost + Direct expenses 
 
  = ` 10,000 + ` 25,000 + ` 5,000 
 
  = ` 40,000    
 
 
Variable cost per unit = 
` 40,000   
 
      
 1,000 units 
 
  
= ` 40 per unit 
 
 Total cost = Fixed cost + Variable cost 
 
  = ` 30,000 + 40,000  
 
  = ` 70,000    
 
 
B.E.P. = Fixed Cost 
 
   P/V Ratio 
 
 
P/V Ratio = Sales - Variable Cost 
 
   Sales 
 
  
= 
` 1,00,000 - ` 40,000 
 
  
` 1,00,000 
  
     
  
= 60% 
   
 
 
B.E.P. = 
` 30,000 
   
 
 
60% 
    
      
 
 
= ` 50,000 6 
 
Q. 5. A company produces calculators and sells 1,000 units of the same at ` 100 each. The variable cost of 
production is ` 60 per unit and fixed cost is ` 400 per annum. Calculate the BEP.  
 
Ans. Sale at Break Even Point = 
Fixed cost × Sales 
 
Sales - Variable Cost 
 
  
 
 
` 400 ? `1,00,000  
 
=
 `1,00,000 - ` 60,000 
 
 
` 4,00,00,000  
 
=
 ` 40,000 
 
 
= ` 1,000  
 
The sales of ` 1,000 are such that the business neither earns profit nor incurs a loss but is just able to pay its own 
 
way. 6 
 
Q. 6. Calculate B.E.P. from the following information : X Co. Ltd. earns profits during the year ` 1,03,017.00  
 
Depreciation changed on :  
 
Building = ` 6,000 
Fixtures = ` 5,000 
Office equipment = ` 13,120 
Total Depreciation = ` 24,120 
Rent = ` 1,20,000 
Interest on Investment = ` 73,950 
Fixed 40% of salary = ` 6,800 
Fixed 40% of overheads = ` 60,000 
Insurance = ` 52,830 
Page 5


 
    
     
 Net Profit Ratio = Net Profit before taxes   
  Sales turnover   
 It is an indicator of the profitability of the business activity. Higher the ratio the better it is. It measures the rate 
 of return on sales. It enables to measure the overall efficiency of business. While comparing with the last year’s 
 ratio, if it increases, it is treated as an improvement in overall efficiency of the business. 3  
Q. 9. What is Margin of Safety ? How is it calculated ?   
 
Ans. The Margin of Safety in profit analysis means the excess of actual sales over the B.E.P. sales. It can be expressed 
 
in rupees or in other quantity unit or as a ratio.  
 
Margin of Safety = Actual Sales – B.E.P. Sales  
 
Or MOS = 
Profit  
3 
 
P/V ratio 
 
  
 
Q. 10. What is Break Even Points ? Why should an entrepreneur know about BEP ?  
 
 
Ans. The business break even when its value is equal to its total cost. The Break Even Point (BEP) is the sales volume 
at which there is neither profit nor loss, cost being equal to revenue. Break Even Point is a neutral point. Sales 
below this point show loss and sales above of this point show profit. It is the relationship among cost of 
production, volume of production, profit and the sales value. 
 
The entrepreneur should know B.E.P. as it helps in : 
 
(i) Forecast : He can forecast about profit fairly and accurately.  
 
(ii) Cost estimation : He can ascertain costs, sales & profits at different levels of activity.  
 
(iii) Price Policy : For taking decision regarding price policy. 4 
Q. 11. What does total cost include ?  
 
Ans. Total cost includes variable costs and fixed costs. Variable costs vary directly with the level of output. It includes the 
expenditure on raw materials, transportation, etc. Fixed costs are not dependent on the level of output. 
 
 These are period costs. They include interest, rent, salary of permanent workers, etc. 3 
 
Q. 12. Write unit of sale in each case.       
 
           
 Business   Items sold/serviced  Unit of sale    
 
 Garment shop   T-shirt ?    
 
           
 Textile shop   Fabric ?    
 
           
 Restaurant   Food items ?    
 
           
Ans.       
 
         
 Business  Items sold/serivced  Unit of Sale   
 
 Garment shop  T-shirt  Customers   
 
         
 Textile shop  Fabric  Customers   
 
         
 Restaurant  Food items  Dinner   
 
         
3 
 
         
 
 
Q. 13. Is Break-even Analysis useful to achieve the target level of profit ? 
 
Ans. Yes, Break-even Analysis is useful to achieve target level of profit. Organizations identify those products which 
yield the highest contribution. Break-even Analysis helps the firm in selecting and ranking those products, 
 
based on contribution, to achieve the targeted level of profit. 4 
  
LONG ANSWER TYPE QUESTIONS [5-6 Marks] 
  
 
Q. 1. Find out break-even point from the following information :  
 
(a) Fixed Cost = ` 40,000/-  
 
 Variable Cost = ` 2 per unit 
 Sales Price = ` 4 per unit 
(b) Fixed Cost = ` 1,00,000/- 
 
Variable Cost per unit = ` 5 
 
Sales Price per unit = ` 10 
 
(i) Determine BEP.  
 
(ii) What is the BEP if Sales Price is reduced by 10% ?  
 
   
 
Ans. (i) 
 
 
 
 
 
 
 
(b) 
 
 
 
 
 
 
 
 
 
 
(ii) (a) 
 
 
B.E.P. (in units) = 
F 
 
Contribution per unit 
 
 
= ` 40,000 / ` 4 – ` 2  
 
= 20,000 units  
 
B.E.P. (in `) = 20,000 × ` 4    
 
 
= ` 80,000/- 
    
 
BEP = 
 F      
 
 
C 
     
       
 
C = S – V     
 
B.E.P. = 
`100,000 
= 
`100,000 
 
 
 
`10 - `5 
    
 
`5 
  
     
 
 
= 20,000 units 
   
 
B.E.P. (in `) = 20,000 × ` 10 
  
 
 
= ` 2,00,000 
    
 
New selling price = ` 4 – (10% of ` 4) 
 
 
= ` 3.60 
    
 
B.E.P. (Units) = 
40,000 
   
 
` 4 - (10% of ` 4) 
 
 = 25,000 units    
 
B.E.P. (in rupees ) = 25,000 × ` 3.60 = ` 90,000 
 
 
(b) B.E.P. at reduced Selling Price by 10%     
 
Selling Price is ` 10/- reduction by 10% means Selling Price is now ` 9/-  
 
Contribution = S – V=9 – 5  
 
 = ` 4/-   
 
B.E.P. (in units) = 
FC 
 
 
Contribution   
 
 = ` 1,00,000/4   
 
 = 25,000 units  
 
B.E.P. (in `) = 25,000 × ` 9 = ` 2,25,000 6 
 
 
Q. 2. The United Company manufactures three products Lipsticks, Eyeliners, Nailpaints. The variable 
expenses and sales price of all these products are given below :  
 
 Lipsticks Eyeliners Nailpaints 
    
Sales price per unit ` 200 ` 100 ` 50 
    
Variable cost per unit ` 100 ` 75 ` 25 
    
 
The total fixed expenses of the company are ` 50,000 per month. For the coming month, it expects the 
sale of three products in the following ratio : 
 
Product X : 20%  Product Y : 50 % 
 
Product Z : 70 % 
 
Compute the break-even point of the company in units and rupees for the coming months. (SQP)  
Ans. Contribution per unit for each product : 
Product Lipsticks Eyeliners Nailpaints 
 (`) (`) (`) 
Sale price p.u. 200 100 50 
    
Variable cost p.u. 100 75 25 
    
Contribution 100 25 25 
    
 
       
 
             
 Calculation of weighted average contribution p.u.      
 
            
  Product Contribution   Weight  Weighted Avg.   
 
   
P.U.(`) 
  
(%) 
 Cont. p.u. (`)  
 
            
  Lipstick 100   20   20.00   
 
               
  Eyliner 25   50   12.50   
 
               
  Nailpaint 25   70   17.50   
 
               
       Total   50.00   
 
              
    
= ` 40 
       
 
 
Break-even point of sales mix (in units) = 
 Total fixed cost      
 
 Weighted Average Cont. p.u. 
 
    
= 
` 5,000 
       
 
    
` 50 
        
            
 
    
= 1,000 units 
     
 
 Products break-even points in units :           
 
   Lipsticks = 1,000 units × 20% = 200 units 
 
   Eyeliner = 1,000 units × 50% = 500 units 
 
   Nailpaints = 1,000 units × 70% = 700 units 
 
 Break-even point in rupees :            
 
   Lipsticks = 200 units × ` 200 = ` 40,000     
 
   Eyeliners = 500 units × ` 100 = ` 50,000     
 
   Nail Paints = 700 units × ` 50 = ` 35,000 6  
 
 
Q. 3. How will you calculate B.E.P. ? 
 
Ans. At the B.E.P. the revenue equals the cost. The formula for compating B.F.P. is simple. 
 
 Total Revenue (R) = Price (P) × Number of units sold (Q) 
 
 Total Cost (C) = Fixed cost (F) + Q × Variable cost per unit (V) 
 
By difinition, BEP         
 
 R = C or P × Q = F + Q × V  
 
 
BEP of output = 
FC 
  
 
 Contribution per unit  
 
 
Contribution = Selling price – Variable cost 
 
 
 BEP on sales = Fixed cost × Selling price per unit 
 
   Contribution per unit  
 
 
BEP = Fixed cost 
 
 
   P/V Ratio  
 
 
P/V Ratio = 
Contribution 
  
 
 Selling price per unit  
 
 
BEP = 
Contribution 
  
 
 Contribution ratio %  
 
 
Contribution Ratio = Selling price - Marginal cost 
 
 
   Selling price  
 
 Marginal Cost = Total variable cost  
 
Or  
= Total cost – fixed cost 
 
 
  
= Direct material + Direct labour + Direct expenses + Variable 
 
        Overhead 
 
Or B.E.P. = 
Fixed cost × Sales  
6 
 
Sales - Variable cost 
 
    
 
 
   
   
   
 
Q. 4. A factory is engaged in manufacturing plastic buckets. The following information is available to 
you : Sales = ` 1,00,000  
Direct labour cost (1,000 units) = ` 10,000 
Direct material cost (1,000 units) = ` 25,000 
Direct expenses (1,000 units) = ` 5,000  
 
Fixed cost = ` 30,000 
 
Find out : (i) Variable cost per unit, (ii) Total cost, (iii) BEP. 
 
Ans. (i) Variable cost = Direct labour cost + Direct material cost + Direct expenses 
 
  = ` 10,000 + ` 25,000 + ` 5,000 
 
  = ` 40,000    
 
 
Variable cost per unit = 
` 40,000   
 
      
 1,000 units 
 
  
= ` 40 per unit 
 
 Total cost = Fixed cost + Variable cost 
 
  = ` 30,000 + 40,000  
 
  = ` 70,000    
 
 
B.E.P. = Fixed Cost 
 
   P/V Ratio 
 
 
P/V Ratio = Sales - Variable Cost 
 
   Sales 
 
  
= 
` 1,00,000 - ` 40,000 
 
  
` 1,00,000 
  
     
  
= 60% 
   
 
 
B.E.P. = 
` 30,000 
   
 
 
60% 
    
      
 
 
= ` 50,000 6 
 
Q. 5. A company produces calculators and sells 1,000 units of the same at ` 100 each. The variable cost of 
production is ` 60 per unit and fixed cost is ` 400 per annum. Calculate the BEP.  
 
Ans. Sale at Break Even Point = 
Fixed cost × Sales 
 
Sales - Variable Cost 
 
  
 
 
` 400 ? `1,00,000  
 
=
 `1,00,000 - ` 60,000 
 
 
` 4,00,00,000  
 
=
 ` 40,000 
 
 
= ` 1,000  
 
The sales of ` 1,000 are such that the business neither earns profit nor incurs a loss but is just able to pay its own 
 
way. 6 
 
Q. 6. Calculate B.E.P. from the following information : X Co. Ltd. earns profits during the year ` 1,03,017.00  
 
Depreciation changed on :  
 
Building = ` 6,000 
Fixtures = ` 5,000 
Office equipment = ` 13,120 
Total Depreciation = ` 24,120 
Rent = ` 1,20,000 
Interest on Investment = ` 73,950 
Fixed 40% of salary = ` 6,800 
Fixed 40% of overheads = ` 60,000 
Insurance = ` 52,830 
 
       
 
        
Ans. B.E.P. = 
Fixed cost ? 100  
 
Fixed cost ? Profit 
 
    
 
  
Fixed Cost = Depreciation + Rent + Interest on Investment + 40% of wages 
 
      + Insurance + 40% of overheads 
 
   = ` 24,120 + ` 1,20,000 + ` 73,950 + ` 52,830 + ` 60,000  
 
   = ` 3,37,700    
 
  
B.E.P. = 
` 3,37,700 ? 100 
  
 
  ` 3,37,700 ? `1,03,017   
 
 
= 76.62% 6 
 
Q. 7. Sales = ` 40,000 Variable 
cost = ` 2,00,000 Fixed 
cost = ` 12,000  
 
(a) Find out P/V ratio, break even point, margin of safety.  
 
(b) Calculate B.F.P. with the effect of :  
 
(i) 10% decrease in fixed cost  
 
(ii) 10% increase in fixed cost  
 
(iii) 10% decrease in valuable cost  
 
Ans. (a) Profit volume ratio = Contribution 
  Sales 
 
=
 Sales - Variable 
cost Sales 
 
 
` 40,000 - `20,000  
=
 ` 40,000 
 
 
= 50%  
B.E.P. =
 Fixed cost 
 
P/V Ratio 
 
 = `12,000   
 
 50%   
 
 = ` 24,000   
 
MOS = Actual Sales – B.E.P. sales 
 
 = ` 40,000 – 24,000 
 
 = ` 16,000   
 
(b) (i) 10% decrease in fixed cost     
 
Then, sales = ` 40,000   
 
Variable cost = ` 20,000   
 
Fixed cost = ` 12,000 – (10% of ` 12,000) 
 
 = ` 12,000 – 1,200 
 
 = ` 10,800   
 
P/V Ratio = 
` 40,000 - ` 20,000 
 
 
  
 ` 40,000  
 
 = 50%   
 
B.E.P. = 
`10,800 
  
 
    
 50%   
 
 
= ` 21,600 
  
 
(ii) 10% increase in fixed cost     
 
Fixed cost = ` 13,200   
 
Sales = ` 40,000   
 
Variable cost = ` 20,000   
 
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FAQs on Long Type Questions - Business Arithmetic, Entrepreneurship, Class 12 - Additional Study Material for Commerce

1. What is business arithmetic and why is it important in entrepreneurship?
Ans. Business arithmetic refers to the mathematical calculations and computations that are commonly used in business and entrepreneurship. It includes concepts such as profit and loss calculations, pricing strategies, financial ratios, and budgeting. Business arithmetic is important in entrepreneurship because it helps entrepreneurs make informed decisions, analyze financial data, and evaluate the profitability and viability of their business ventures.
2. How can business arithmetic help entrepreneurs in managing their finances effectively?
Ans. Business arithmetic plays a crucial role in helping entrepreneurs manage their finances effectively. By using various mathematical concepts and calculations, entrepreneurs can determine their costs, forecast revenue, calculate profit margins, and analyze financial ratios. These calculations enable entrepreneurs to make sound financial decisions, set realistic financial goals, monitor cash flow, and ensure the financial stability and growth of their business.
3. What are some common applications of business arithmetic in entrepreneurship?
Ans. Business arithmetic finds various applications in entrepreneurship. It is used to determine the selling price of products or services by considering the cost of production, overhead expenses, and desired profit margin. It is also employed in calculating break-even points, analyzing the profitability of different products or business lines, and evaluating investment opportunities. Additionally, business arithmetic assists in budgeting, financial forecasting, and managing cash flow effectively.
4. How can entrepreneurs use business arithmetic to assess the financial performance of their business?
Ans. Entrepreneurs can use business arithmetic to assess the financial performance of their business by analyzing key financial ratios and indicators. For example, they can calculate the gross profit margin, net profit margin, return on investment, and liquidity ratios. By comparing these ratios with industry benchmarks or previous periods' performance, entrepreneurs can identify areas of improvement, track their business's financial health, and make informed decisions to enhance profitability and efficiency.
5. What are the potential challenges entrepreneurs may face while applying business arithmetic in their ventures?
Ans. While applying business arithmetic in their ventures, entrepreneurs may face several challenges. These include the complexity of calculations, the need for accurate and up-to-date financial data, and the ability to interpret and analyze the results effectively. Additionally, entrepreneurs may encounter challenges in forecasting future revenue and expenses, dealing with unexpected financial fluctuations, and adapting their financial strategies to changing market conditions. To overcome these challenges, entrepreneurs should seek professional advice, use reliable financial software or tools, and continuously update their financial knowledge.
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