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CVP Test Solution

The document provides solutions to two accounting problems. The first problem calculates the number of units needed to maintain current profit levels and the selling price required to earn a profit of Rs. 2 million. The second problem calculates the breakeven sales, product-wise sales breakdown, total fixed costs, and contribution margin ratio for Khan Corporation Limited. Key details like sales mix, fixed and variable expenses, and calculations are shown.

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26 views2 pages

CVP Test Solution

The document provides solutions to two accounting problems. The first problem calculates the number of units needed to maintain current profit levels and the selling price required to earn a profit of Rs. 2 million. The second problem calculates the breakeven sales, product-wise sales breakdown, total fixed costs, and contribution margin ratio for Khan Corporation Limited. Key details like sales mix, fixed and variable expenses, and calculations are shown.

Uploaded by

ahsaankhan2811
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cost & Management Accounting

Suggested Solution
Answer 1: Hope limited
a) Number of units to be sold to maintain current profit:Current profit: Rs. in “000”
Sales (6,000 × 1,600) 9,600
Variable Cost [6,000 × (240+960)] (7,200)
Contribution 2,400
Fixed cost (850)
Net profit 1,550
Target Profit (units) = Total fixed cost + Current year profit
Contribution/unit

= 850,000+1,550,000 = 6,593 units


∗ 364

*Contribution Per unit:


Sale price per unit 1,600
Variable cost per unit (240×1.15+960) (1,236)
364
b) Selling price per unit to earn a profit of Rs. 2 million:
Sales [9,375(w-1) ×1,548(w-2)] 14,513,500
Variable cost of sales [9375 × (960+240×1.15)] (11,587,500)
Contribution 2,926,000
Fixed cost [850,000+(760,000×10%)] 926,000
Profit 2,000,000
(w-1) 6,000/80×100=7,500 (At 100% capacity)
7,500×1.25=9,375
(w-2) Reverse working to get selling price of 1,548:
14,513,500 ÷ 9,375 = 1,548
Answer# 2: Khan corporation limited
“Rs. In Million”
Breakeven Sales Rs.
= Total fixed Cost
CS Ratio
= 627 (w.1)
38.7 % (w.2)
= 1,616.81
Note: As there is no information of units, therefore use CS ratio to Calculate Breakeven Sales

Product Wise Sales:


A (1,616.81 x 5/10) 808.41
B (1,616.81 x 3/10) 485.94
C (1,616.81 x 2/10) 323.36
Total 1,616.81

Workings:
Sales Mix: [based on product-wise sales]
A (1,500/3,000 x 100) 50% or 5/10
B (900/3,000 x 100) 30% or 3/10
C (600/3,000 x 100) 20 % or 2/10

W.1 Total Fixed Cost


Factory OH (380-30 (40 x 75%) – 90 (100 x 90%) 260
Selling & Distribution {370 (150 + 120 + 100) –183(111 (W.2) + 72 (w.2))} 187
Admin & Other Expenses (all fixed) (90 + 54 + 36) 180
Total 627

W.2) CS Ratio or Contribution Margin Ratio


Sales (1500 + 900 + 600) 3,000
Less: Variable Cost
Material (660 + 360 + 216) (1,236)
Direct Labor (120 + 100 + 80) (300)
Indirect Labor (40 X 70%) (30)
Fuel & Power (100 X 90%) (90)
Commission on Sales (111)
(1500 X 3%) + (900 X 4%) + (600 X 5%)
Distribution Expense (72)
(1500 X 2%) + (900 X 2%) + (600 X 4%)
Contribution Margin 1,161

Contribution Margin Ratio = 1161 / 3,000 X 100 = 38.7%

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