Note: It is assumed that the costs given in the question are Total Costs per annum and the % given represents the variable portion and remaining the fixed portion.

Particulars	Total Annual Cost	Variable Cost %	Variable Cost	Fixed Cost
Materials	120000	100	120000	-
Labour	150000	80	120000	30000
Factory Overhead	92000	60	55200	36800
Admin Overhead	40000	35	14000	26000
TOTAL	402000		309200	92800

a) Computation of Selling Price per unit of bottle to realise a profit of 10% on Sales

Let the Selling Price per unit be x.

Annual Sales = 40000x

Commission (8% on Sales) = 3200x

Target Profit (10% on Sales) = 4000x

Total Cost (from above table) = 402000

Sales = Cost + Profit

40000x = 402000+3200x+4000x

Solving, x = 12.256

Thus, Selling Price per unit of bottle to realise a profit of 10% on Sales = 12.256 per unit

b) Required Break-even point in Sales and Quantity:

Assumption, Sales Price per bottle = Rs. 14

BEP in Sales = Total Fixed Costs/Contribution Sales Ratio(PV Ratio)

BEP in Quantity = Total Fixed Costs/Contribution per unit

• Total Fixed Costs = 92800
• Contribution per unit = Selling Price per unit - Variable Cost per unit

Variable Cost per unit = 309200/40000 = 7.73

Sales Commission per unit = 14*8% = 1.12

Contribution = 14-7.73-1.12 = 5.15 per unit

• Contribution Sales Ratio = 5.15/14 = 36.79%

BEP (Sales) = 92800/36.79% = Rs. 252242

BEP (Quantity) = 92800/5.15 = 18019 units

d) Relevance of CVP Analysis:

• CVP analysis provides relationship between cost, volume and profit and hence becomes important for budgeting and planning.
• It helps management to identify most profitable combination of costs and volume.
• We can also identify how change in costs and volume effect changes in income.
• Hence it plays a major role in decision making.