Page 116 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 6: Marginal Costing and Absorption Costing

(c) Break even sales Notes

(d) Margin of safety
2. Analyse the important of the following in relation to break-even analysis:
(a) Break-even point
(b) Margin of safety
(c) Profit volume ratio

3. Illustrate the graphic approach of BEP analysis.

4. Examine the concept of the profit volume ratio.

5. A ball pen manufacturer has developed a new ball pen with unique features. His design
development executive has suggested three possible retail prices viz ` 15 for super star;
` 10 for deluxe and ` 7.50 for economy model. His marketing manager opines that the
wholesalers and retailers have to be given at least 30% discount.

The estimated fixed cost would be around ` 70,000 and variable cost per unit would be

` 3.50.
Calculate break even point for each model of the ball pen.

6. The PV ratio of a firm dealing precision instrument is 50% and the margin of safety is 40%.

You are required to work out the B.E.P and the net profit if sales volume is ` 50,00,000.

7. The annual profit plan of ABC Ltd. is given in the following table. From the data given in
the table, calculate the breakeven point in units.

Annual profit plan of ABC Ltd.
Particulars Fixed cost ` Variable cost ` Total `
Budgeted sales (2,00,000 ` 21 each) . ` 42,00,000
Direct labour 8,00,000
Direct material 9,00,000
Factory overheads 6,00,000 2,00,000
Administrative expenses 5,00,000 1,00,000
Distribution expenses 3,00,000 2,00,000
Total 14,00,000 22,00,000 36,00,000
Budgeted profi t 6,00,000
Capacity of production 2,50,000 units
8. Explain the relevance of adopting CVP concept in business operations.

9. How do Income statements prepared under marginal and absorption costing differ?
10. Taking suitable data construct a simple break even chart and show the break even point,
angle of incidence and margin of safety on the chart.
11. Does the marginal costing concept violate the generally accepted accounting principles?
Discuss.
12. Company manufacturing electric motors at a price of ` 6,900 each, made up as under:
Cost in `

Direct material 3,200
Direct wages 400

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