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Amarendra Sahu, 0911219

Brijendra Arya, 0911226
Gurav Shekhar, 0911238
Kalpesh Muchchal, 0911253
Narendra Singh, 0911255
 àase Facts

! Firm sells 3 products A, B, à with demand of A expected to

fall, that of B to remain stable and that of à to double
! Fixed costs in the plant change with capacity utilisation
! Half of the profit after taxes are shared with the
government
! Selling price of à to be increased to reflect quality and
maintain reputation
 „xisting condition

! Plant capacity ± 2,000,000 per year

! Total fixed costs - $2,970,000
! Total revenue - $10,800,000
! Sales volume ± 1,500,000 units
! àapacity utilization ± 75%
! Average unit price - $7.20
! Average unit variable cost : $4.50
! Average unit àontribution Margin to sales ± 0.375
! Break-even sales point - $7,920,000
! Break-even sales units - 1100000
 Assumption

! The sale volume ratio in units of A, B, à remains

same as 6:4:5
! No change in fixed cost
! Weighted Average contribution margin remains
same ( $2.70)
! The selling price does not change if we are talking
Break even in sales (revenue) terms
 New Information

! àapacity of the plan to be increased by investment of

%60000 per month ( $720000)
! Sale price to à is to be increased by 100%
! Sales volume of à is to be increase by 450000 units
! Sales volume of A is reduced to 2/3 to 400000

*Note: All Break-even points are calculated in units. The sales unit
proportion to be used to find out individual product line units. Dollar
value can be obtained by multiplying Break-even unit with weighted
average selling price.
 àhange in Product Structure

Additional Investment in C = 60000*12 = 720000, New C price is doubled

A's new volume is 2/3 and C's volume is increased by 450000
A B C Total
New Sale Volume Ò Ò
 
Sale Price  
 Ò 
Ò
Sales Revenus Ò  Ò  
Variable Cost    Ò
Variable Cost to sales  Ò   Ò 
Unit contribution to sales      Ò
Utilization of capacity 

Ò


Total Variable Cost   Ò  


Fixed Cost
   

Profit Ò Ò 
 Ò
BEP (Units) Ò
Ò ÒÒ  
BEP (Dollars) 

 àhange in Profit Structure

Profit After Tax 

Including Govt. Share 
Tax Rate 

Profit Required Ò
Contribution Margin 
Fixed Cost 

Number of Units required Ò 





New Union Demand = 10% increase in Variable cost
New Contribution Margin 
Number of Units for same dividend Ò

  



Number of Units for new dividend ÒÒ 


 Investment in à s àapacity
! Break „ven analysis is useful for company in deciding the
product emphasis

C's Price Old (2.4) New (4.8)

Contribution Margin 


Total Units



Fixed cost can be covered  

Current Fixed cost Ò Ò

Maximum Investment 405000 2685000

Profit Loss from A  

Max Inv If A's loss taken Not Possible 2185000

 Individual Break-even Analysis

A B C Total
Sale Volume  Ò  
Sale Price  
 Ò 
Sales Revenus     
Variable Cost    Ò
Variable Cost to sales  Ò    
Unit contribution to sales     
Utilization of capacity  




Total Variable Cost Ò   

Fixed Cost
  Ò

Profit Ò Ò  
BEP (Units) Ò
Ò   

! The sum of individual B„P does not come equal to B„P of the Total
> Since the Unit contribution margin is not same and fixed cost proportion is
not same as ratio of individual units sold
 ×alue of Break-even Analysis

! Helps understand and formulate the relationship between costs (fixed

and variable), output and profit
! Helps quickly observe profit levels at different outputs
! In a wide product range, the analysis helps to find out which products
are performing well and which are leading to losses
! The technique can be used to set sales targets and/or prices to generate
target profits
! It is also versatile enough to include items like donations, wage
increases, etc. that directly or indirectly affect costs