Question

A retail dealer in Auto Parts is currently selling 15,000 Auto Parts annually. He supplies the following details for the year ended December 31, 2009

DETAILS	AMOUNT (Rs.)
Seling Price Per Unit	200
Variable Cost Per unit	120
Fixed Costs :
Staff Salaries	3,00,000
General Office Cost	1,00,000
Advertising Cost	80,000

(a) Calculate the break even point and margin of Safety.

(b) Assume that 12,000 Auto Parts were sold during the year. Find out the net profit of the firm

Assuming that in 2010 the rate of factory over heads went up by 20%, dist. expenses went down 1 by 10%, and selling expenses went up by 12 —2 %; at what price should the work be quoted so as to earn the same rate of profit on the selling price as in 2009. Show full working. It may be noted that factory overheads are based on direct wages while administration, selling and distribution expenses are based on factory cost.

Answer 1

Selling Price per unit - 200

Variable Cost -120

Contribution - 80

P/V Ratio = 80/200

= 40%

Sales Amount = 15,000*200 = 30,00,000

Fixed Costs = 3,00,000+1, 00,000+80, 000 =4, 80,000

a) Break Even Point = Fixed Cost / PV Ratio

=4,80,000/40%

=12,00, 000

Margin of Safety =(Actual Sales - Break Even Sales) /Sales

=(30,00,000-12,00,000) /30,00,000

=18,00,000/30,00,000

=60%

b) If 12,000 Auto parts were sold, then

Sales - 12,000*200 - 24,00,000

Less: Variable Costs - 12,000*120 - (14,40,000)

Contribution - 9,60,000

Less: Fixed costs - (4,80,000)

Net Profit - 4,80,000