During the current year AB Ltd. Should a profit of Rs. 1,80,000 on a sale of Rs. 30,00,000. The various expenses were Rs. 21,00,000. You are required to calculate: 1. The break even sales at present. 2. The break even sales if variable cost increased by 5. 3. The break even sales to maintain the profit as at present, if the selling price is reduced by 6 per cent.

You are currently viewing During the current year AB Ltd. Should a profit of Rs. 1,80,000 on a sale of Rs. 30,00,000. The various expenses were Rs. 21,00,000. You are required to calculate: 1. The break even sales at present. 2. The break even sales if variable cost increased by 5. 3. The break even sales to maintain the profit as at present, if the selling price is reduced by 6 per cent.

During the current year AB Ltd. Should a profit of Rs. 1,80,000 on a sale of Rs. 30,00,000. The various expenses were Rs. 21,00,000. You are required to calculate: 1. The break even sales at present. 2. The break even sales if variable cost increased by 5. 3. The break even sales to maintain the profit as at present, if the selling price is reduced by 6 per cent.

Post author:IGNOU ASSIGNMENT WALA
Post published:July 28, 2023
Post category:Updates
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To calculate the break-even sales for AB Ltd. under different scenarios, we first need to determine the contribution margin. The contribution margin is the difference between sales revenue and variable expenses and represents the amount available to cover fixed expenses and generate profit. The formula for the contribution margin is:

Contribution Margin = Sales Revenue – Variable Expenses

Given the information provided:

1. Contribution Margin at the present:
Sales Revenue = Rs. 30,00,000
Variable Expenses = Rs. 21,00,000
Contribution Margin = 30,00,000 – 21,00,000 = Rs. 9,00,000

Now, let’s calculate the break-even sales for AB Ltd. under different scenarios:

1. The Break-even Sales at Present:
Break-even Sales (in units) = Fixed Expenses / Contribution Margin

To find the break-even sales in units, we need more information about the fixed expenses. Once you have the fixed expenses, you can use the formula to calculate the break-even sales.

2. The Break-even Sales if Variable Cost Increased by 5%:
In this scenario, the variable expenses will increase by 5% from the current Rs. 21,00,000.
New Variable Expenses = Rs. 21,00,000 + 5% of Rs. 21,00,000 = Rs. 21,00,000 + Rs. 1,05,000 = Rs. 22,05,000

Contribution Margin with increased variable expenses = Sales Revenue – New Variable Expenses
Contribution Margin = Rs. 30,00,000 – Rs. 22,05,000 = Rs. 7,95,000

Now, you can calculate the break-even sales for this scenario using the same formula as above.

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3. The Break-even Sales to Maintain the Profit as at Present, if Selling Price is Reduced by 6%:
In this scenario, you need to account for the reduced selling price. The contribution margin will be affected by the reduced selling price.

New Selling Price = 94% of the current selling price
New Sales Revenue = 94% of Rs. 30,00,000 = Rs. 28,20,000

Contribution Margin with the reduced selling price = New Sales Revenue – Variable Expenses
Contribution Margin = Rs. 28,20,000 – Rs. 21,00,000 = Rs. 7,20,000

Now, you can calculate the break-even sales for this scenario using the same formula as above.

Remember to provide the fixed expenses to calculate the break-even sales in units for each scenario. The break-even sales in units are then converted into rupees by multiplying them by the selling price per unit.