Page 237 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes (`)
Sales 20,00,000
Fixed Costs 5,00,000
Variable costs 12,00,000
Solution:

Total Contribution: (`)
Sales 20,00,000
Variable Cost 12,00,000
Contribution 8,00,000
As percentage of sales or P/V ratio = ` 8,00,000/` 20,00,000 × 100 = 40%

Alternatively: (Fixed Cost + Profit)/Sales × 100

(` 5,00,000 + ` 3,00,000/` 20,00,000) × 100 = 40%
Break-even sales:
Fixed Costs/P/V Ratio i.e., ` 5,00,000 × 100/40 = ` 12,50,000

Proof: Variable Costs: (`)
60% of ` 12,50,000 7,50,000
Fixed Costs 5,00,000
Total Cost 12,50,000
Total costs equal sales; hence there is neither profit nor loss.

Points plotted:

Break-even Chart

Sales Variable Costs Fixed Costs Total Cost
(`) ` (60% of sales) (`) (`)
0 0 5,00,000 5,00,000 (C )
1
15,00,000 9,00,000 5,00,000 14,00,000 (C )
2

Y S 2
15 Total C 2
Sales Profit
Total
Cost
10 BEP
Cost (Rs. in lakhs) Cost (` in lakhs) 5 C 1 S 1 Loss

0 X
5 10 12.5 15 20 25
Sales (Rs. in lakhs)
Sales (` in lakhs)
Profi t-Volume Chart: (At zero sale loss is ` 5 lakh: at ` 20,00,000 sales, profi ts is ` 3 lakh (P2). Draw
a line to join there two points. The break-even sale is at the point where it meets the X-axis).

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