Plz solve this problem

Final 8078 views 4 replies

Swapnil

Student

183 Points Joined April 2012

Dear CCI members, kindly provide me solution for this problem.

Mr. X has Rs. 200,000 investment in his business firm. He wants 15% return on his money. From an analysis of recent cost figures he finds that his variable cost of Operating is 60% of sales, his fixed cost are Rs. 80,000 per year. Show computations to answer the following questions.

a) What sales volume must be obtained to Break Even?

b) What sales volume must be obtain to get 15% Return on Investment?

c) Mr. X estimates that even if his closed the doors of his business, he would incure Rs. 25000 as expenses per year. At what sales would be better off by locking his business sup.

Replies (4)

Guest

1) 80,000 / 40% = 2,00,000/- sales volume to achieve break even point.

assumptions: no tax,,, p.v ratio = contribution / sales i.ee 40/100*100 = 40/-,,assumed as 100% sales volume.

2) 80,000 + 30,000 = 1,10,000 / 40% = 2,75,000/- sales volume to achieve break even point.

note: 2,00,000 * 15/100 = 30,000/- is opportunity cost is to considered to achieve break even point.

3) it is up to uuuu,,, to think what to do??????????

Vineet Jaiswal

141 Points Joined July 2012

Break Even Point = Fixed Cost/ Contribution ratio

= 80000/40% = Rs. 200,000/-

BEP (with targetted profit) = Targetted Profit = 200000 * 15% = 30000

Therefore, BEP = (Fixed Cost + Targetted Profit)/ Contribution Ratio

= (80000+30000)/40% = Rs. 275000/-

Now, 3rd part involves a decision on Shut Down of business. So we have 2 alternatives :

Particulars Shut Down Continue Business

Fixed Cost Nil 80000

Shut Down Expenses 25000 Nil

Difference in 2 expenditure = 80000 - 25000 = Rs. 55,000/-

Now in order to Shut Down his business, sales level should be such that Contribution is less than Rs. 55,000/-

Sales Level to acheive Rs 55,000 contribution = 55,000/40% = 137500/-

Therefore, shut down would be feasible at Sales Level of less than Rs. 137500

Guest

@ vineet jaiswal

let we give her, an opportunity to think & make a good decission. &

y u provided that decission making answer.

Vineet Jaiswal

141 Points Joined July 2012

Originally posted by : gvgr7
	@ vineet jaiswal let we give her, an opportunity to think & make a good decission. & y u provided that decission making answer.