During the current year AB Ltd. Showed a profit of Rs. 1,80,000 on a sale of Rs. 30,00,000. The variable 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.

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Ans:

To calculate the break-even sales for AB Ltd., we’ll need to use the following formula:

Break-even Sales = Fixed Costs / (1 – (Variable Costs / Total Sales))

First, let’s calculate the break-even sales at present:

1. Break-even Sales at Present:

– Profit = Rs. 1,80,000

– Sales = Rs. 30,00,000

– Variable Expenses = Rs. 21,00,000

– Fixed Costs = (Sales – Variable Expenses – Profit)

Fixed Costs = (30,00,000 – 21,00,000 – 1,80,000) = Rs. 7,20,000

Now, calculate the break-even sales at present:

Break-even Sales = 7,20,000 / (1 – (21,00,000 / 30,00,000))

2. Break-even Sales if Variable Costs Increase by 5%:

– New Variable Costs = 21,00,000 + 5% of 21,00,000

New Variable Costs = 21,00,000 + (0.05 * 21,00,000) = Rs. 22,05,000

Now, calculate the break-even sales with increased variable costs:

Break-even Sales = 7,20,000 / (1 – (22,05,000 / 30,00,000))

3. Break-even Sales to Maintain the Profit with a 6% Reduction in Selling Price:

– New Selling Price = 94% of the original selling price (100% – 6%)

New Selling Price = 0.94 * 30,00,000

- Profit to maintain = Rs. 1,80,000

Now, calculate the break-even sales to maintain the profit with the reduced selling price:

Break-even Sales = (7,20,000 + 1,80,000) / (1 – (22,05,000 / (0.94 * 30,00,000)))

These calculations will provide you with the break-even sales under the specified scenarios.