High School

3. Calculate:

i) BEP in terms of sales and in units
ii) No. of units that must be sold to earn a profit of Rs. 90000

| Particulars | Rs. |
| :------------------------------ | :---- |
| Fixed factory overhead cost | 60000 |
| Fixed selling overhead cost | 12000 |
| Variable manufacturing cost / unit | 12 |
| Variable selling cost per unit | 3 |
| Selling price per unit | 24 |

Answer :

Let's solve the problem step by step.

First, let's define the terms we are going to use:

  • Fixed Costs (FC): These are costs that do not change with the level of production or sales. Here, the fixed factory overhead cost is Rs. 60,000 and the fixed selling overhead cost is Rs. 12,000.
  • Variable Costs (VC): These are costs that change directly with the level of production. The variable manufacturing cost per unit is Rs. 12, and the variable selling cost per unit is Rs. 3. Therefore, the total variable cost per unit is Rs. 12 + Rs. 3 = Rs. 15.
  • Selling Price (SP) per unit: This is the price at which each unit is sold, which is Rs. 24.

i) Calculate the Break-Even Point (BEP)

The BEP in units is the number of units that need to be sold to cover all fixed and variable costs. The formula is:

[tex]\text{BEP (units)} = \frac{\text{Total Fixed Costs}}{\text{Selling Price per Unit} - \text{Variable Cost per Unit}}[/tex]

First, calculate the total fixed costs:

[tex]\text{Total Fixed Costs (TFC)} = 60,000 + 12,000 = 72,000[/tex]

Next, calculate the contribution margin per unit, which is the selling price per unit minus the variable cost per unit:

[tex]\text{Contribution Margin} = 24 - 15 = 9[/tex]

Now, compute the BEP in units:

[tex]\text{BEP (units)} = \frac{72,000}{9} = 8,000[/tex]

To find the BEP in terms of sales, multiply the BEP in units by the selling price per unit:

[tex]\text{BEP (sales)} = 8,000 \times 24 = 192,000 \text{ Rs.}[/tex]

ii) No. of units that must be sold to earn a profit of Rs. 90,000

To find the number of units needed to earn a specific profit, we use the formula:

[tex]\text{Required Units} = \frac{\text{Total Fixed Costs} + \text{Desired Profit}}{\text{Contribution Margin per Unit}}[/tex]

Substitute the given values:

[tex]\text{Required Units} = \frac{72,000 + 90,000}{9} = \frac{162,000}{9} = 18,000[/tex]

Therefore, the company needs to sell 18,000 units to earn a profit of Rs. 90,000.

In summary:

  1. The Break-Even Point is 8,000 units or sales worth Rs. 192,000.
  2. To earn a profit of Rs. 90,000, the company needs to sell 18,000 units.

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