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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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