# Break Even Point and Margin of Safety

```Strategic Cost Management
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Strategic Cost Management
Problem 1
Initial Investment: 500,000
Annual savings of: 100,000
Cost of capital: 9%
Find the payback period and discounted payback period (nearest year is acceptable),
which one will you recommend and justify your recommendation
Round to 3 decimal places for all calculations. Assume all savings happen at the end of
year, starting from Year 1 (10 Marks)
Problem 2:
An auto component manufacturing company is contemplating introducing a new
inspection process in their assembly line to save on rectifying cost. The current
production is in batches, each batch produce 5000 components. The cost of inspection
of each component is Rs 50, the cost of rectifying each defective component is Rs 250.
If a defective component is sent to customer and returned by customer it cost the
company Rs 500. Calculate at what percentage of defective rate it would be beneficial
for the company to adopt the proposal. (10 Marks)
Problem 3:
From the following details calculate and elaborate on:
Sales
150,000
Total Cost 120,000
Fixed Cost
Profit
60,000
30,000
a. P/V ratio (5 Marks)
b. Break Even Point and Margin of Safety (5 Marks)
[email protected]
[email protected]
+91 95030-94040
```

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