 Namaste. In last few sessions we have discussed CVP, BP. In the last session we have also discussed the relevant cost versus sunk cost. We have done cases based on few decision making scenarios. Let us go for the next case again based on decision making and we have to calculate BEP. But this case is very interesting because we are going for a picnic. So, we have to take a decision for pricing for a school picnic. Please read the case yourself. So, Rishi Patsala has total of 160 students and they are proposing to go for a picnic to Bhima Shankar. Now, Bhima Shankar is a very important pilgrimage place in Maharashtra. It also has a very interesting sanctuary there wherein you can see wildlife. So, please go through this. There is a reserve for us there. Cost details are also mentioned. Now, based on the cost the question is you are required to compute A if school decides to charge 500 per student what is a BP in terms of number of students and what is a PV ratio. Interesting thing is you can have multiple answers. You can have up to 4 columns are given I mean 4 sales are given. You can have up to 4 answers for BP and 4 answers for PVR. In B part now school has decided to take a few students from municipal school at a concessional fee. So that they would be charged enough fee just to cover the incremental cost. Now, what will be the concessional fee? Again there are 4 possible answers and in part C as per the estimated number of students you need to make 4 columns. Now, instead of charging 500 school wants to just cover enough fee to cover the costs. So, lower fee 1, 2, 3, 4. So, these 3 calculations are required. Please go through the case once again and then we will discuss the solution. So, you are ready. So, let us start collecting the important data and we know in marginal costing or in CVP we segregate the cost as per their nature. So, please list down the fixed cost, variable cost and semi variable cost if any. So, are you able to identify? There is a cost of donation at Mandir that is 3000, that is a fixed cost. Gifts are fixed cost, bus rent, one more fixed cost, prices. Shall we take bus rent permit? How much is a bus rent permit cost? I think it is based on anything is missed out, special permit fee of 700 is per bus. So, we will not take it as a fixed cost. It becomes a semi variable cost. So, let us list out what are the semi variable cost? Teachers allowances. How much is the allowance to teacher? 200 per teacher for 2 teachers. So, in each bus the for each bus the cost will be 400, entry fee for the bus, bus permit fee, then the variable cost, variable cost is 108. Are you getting it? So, we have made a list of cost on food, etc. which is 20, 68 and 20. Variable cost per unit as 108 and variable cost per teacher is 128. Now, this 128 though is variable per teacher for us the cost unit is student. So, for every student the variable cost is 108. For teacher it is 128, but the variable cost of the teacher will need to be considered as a semi variable cost. And there are 2 teachers in one bus. So, per bus cost is a cost calculation which we have made which includes teacher allowances, entry fee, food and other variable cost for the 2 teachers 258, 256, 4700 is a bus rent. So, it becomes 5756 per bus. Fixed cost is 12000. Bus rent permit though have entered will not be included in fixed cost it will rather be included in semi variable cost which changes per bus not per student. So, are you getting it now? We have got 3 types of cost one which are totally changing with student that is variable, one which are changing with bus. So, SVC semi variable and the third ones are not changing at all they are fixed. Now, let us go for they have actually asked us to calculate BEP and other things, but in the C part they have also asked us to calculate different costs as per number of students. So, it will be better to make different columns. So, please open your net book prepare columns for 80, 120, 150 and 160 students right. So, how many buses will be required for 80 students? There will be 2 buses like that for each of the range let us go for number of buses 2, 3, 3 and 4 as per the number of students. Now, how much will be the variable cost for 80 students? Now, there is no point in writing each variable cost for each student. We are essentially calculating total variable cost for 80 students and we know that variable cost is 108 per unit. So, 108 into 80 will be the VC for 80 students. So, it comes to 1680, are you waiting? Now, how much will be semi variable cost? It depends on number of buses there are 2 buses and one bus costs 5756. So, total SVC for 80 students comes to 11512 which is for 2 buses and total fixed cost is 12000 which is anyway fixed. So, total cost is 35152 for 80 students, are you getting? And what is the average cost? If we divide by 80, we get it as 401 around 400 rupees per student if there are 80 students. Now, we have been asked in the C part of the question compute for 80, 120, 150 and 160. So, we will try to calculate it for all these 4. In fact, we can also calculate it for 50 just for our own sake. Now, same calculation please make it for 120 students. Now, what is VC? 12960 right 108 into 120 then semi variable cost how much it is? Now, it is for 3 buses. So, it comes to 17268 fixed cost is unchanged. So, it is 12000 total cost is 42228 and now the average cost you can see there is a drop in average cost is 351.9. So, almost 50 rupees reduction has happened because number of students have gone up. Now, let us see what happens if number of students go up to 150. So, how much is a VC now? It is 16200 at the rate of 108 into 150 semi variable cost will be same now because it is now also it is 3 buses fixed cost is always constant at 12000 total cost will be now 45468 and the average cost goes down to 303 because this is also known as economies of scale. Now, you are having more student so total cost is going down. Now, if you go for 160 students will total cost further go down? You can see here total cost is falling from 80 to 120 to 150. For 160 will it fall further? It may not because economies of scale are not always true. You can just calculate it and then we will discuss. So, VC is now 17280, SCVC will go up because now there are 4 buses fixed cost is constant total cost is now 52304 and you can just see that average cost has slightly gone up. Why has it gone up? Because SCVC has gone up if you remember semi variable cost are step in nature. So, we have can have 1 bus, 2 buses, 3 buses, 4 buses now because just for last 10 students you had to take one more bus that is why your average cost has gone up. Normally, it is true that average cost will fall because variable cost per unit is same 108. Fixed cost is constant at 12000 and gets spread over more and more number of students. However, semi variable cost is unique it has a step nature. So, while increasing the level of operations we have to keep a close eye on semi variable cost. Are you getting? So, this was a basic calculations now let us go to what has been asked. Now, you were asked to calculate BP and it was told that you can have more than one answer. Now, what is a formula for BP? Fixed cost upon in this case since its number of students will go for fixed cost upon contribution per unit. Now, the selling price is known that is 500. So, compute the contribution. So, 500 minus 108. So, very high contribution 392 per unit break even point. So, we go for FC upon contribution per unit. So, how much will be break even point? Will it be 12000 upon 392? Let us check. So, I think you will have to apply your mind and then only we will get the answer. Are you able to apply your mind? Because the fixed cost is not going to be fixed here. Normally, we know that fixed cost is defined as a cost which does not change with level of activity. But in this case what is happening is the bus related costs are semi variable in nature and we are not including them in the variable cost. So, they are they have to be included in the fixed cost. So, what happens is if you have got two buses the fixed cost becomes 23512. It is 12000 plus the cost of two buses that is 5756 into 2. Are you getting it? So, for 80 students the fixed cost is 23512. When the number of students touch in fact, when number of students cross 50 that is you have to go for sorry when number of students cross 100 that is you have to go for 3 buses. The fixed cost becomes 29268 and when you go for 4 buses the fixed cost becomes 35024. Contribution is unchanged at 392. So, you get multiple break even points. Are you getting me? Now, the break even points are 59, 74, 89 that is why there was a possibility of having three break evens. Can you have one more break even with just 50 students? I think we will need to calculate what happens for 50 students. If you just take 50 students that is only one bus, the SVC is 5756, the total cost is 23000. So, average cost is 463. Although it was not asked in the problem we have done this extra calculation because for this you will need to calculate BP. So, you will realize now it is just one bus. So, fixed cost is 17756 and BP is 45. So, in the first part of question it was asked that calculate the BP and you can have up to 4 alternate answers. I hope you have got the answers now. So, possible answers are 45, 59, 74 and 89. Are you getting it? Now, so far in earlier problems we never encountered with multiple BP. But here you will realize that because of existence of semi-variable cost you can approach a scenario where you can have more than one BP. If the cost structure is a straight line that is you have got same fixed cost and only one PV ratio or only one contribution per unit then there will be only one BP. But if the cost structure is a curve or if it is a step nature you can have more BP. That is why while answering the first part of the question you will have to come out with 4 answers of BP. Now, what are the 4 PV ratios? Can you calculate? PV ratio all of you know the formula contribution upon selling price. So, how much is a PVR? Are you able to calculate PV ratio for each of the scenarios? In the first case it becomes 0.7840 that is 392 upon 500. What will happen for 2, 3, 4 buses? What will be the other PVRs? Will they change? Actually no, because PVR has nothing to do with fixed cost or semi-variable cost. It is purely a relationship between contribution and sales. That is why I was repeatedly asking you what could be other PVRs? They are just asked here to confuse you. And mind well sometimes students are so intelligent that they come out with 2, 3, 4 PVRs because it is asked in the problem. Actually answer for the second part that is this PVR is only one because you can have just one PVR which is 0.7480. Are you getting me? Okay. Now, let us go to the B part. Now, in B part it has been asked that school wants to help out some municipal school students and they would be taken with our normal students at a concessional fee because they may not be able to afford 500 rupees. We want to charge them just enough to cover incremental costs. We do not want to make any profit from them. At the same time, we do not want to subsidize them. So, whatever is their cost will be recovered. So, what will be the concessional fee from these students in scenario 1, 2, 3, 4? Actually the concessional fee will be just 108 because we know that variable cost per student is 108. We want to cover from them just enough that is just enough to cover their variable cost which is 108. Whether we have got 1 bus, 2 bus, 3 bus, 4 bus does not make any difference because we do not want to cover rent of the bus from them. Only difference will be whatever is our free seats that is whatever are our vacant seats we may want to take those students. That number may vary but the fee will not change. So, again 4 answers have been asked is just to trick you. Concessional fee the only one answer is there that is 108. Are you getting me? Now the C part. Now, maybe there are some complaints from the students that they do not want to pay 500 rupees. So, the school has now decided to charge the fee at cost without taking any profit from students. We will just take fee at cost. So, what will be the lower fee in these 4 scenarios? So, what is the answer? I think we have already calculated the average cost. Now, there will be no profit taking. There are 4 possible scenarios. There are 4 possible fees. So, for 80 students it is 401, for 120 students 351 then 303 and 326. Got it? So, what have we learned in this case? There are 2, 3 extra things you already knew how to calculate break even point. But in this case we have seen that there can be multiple break even points especially if cost structure is not linear. If you remember in my earlier session I had told you that some of the assumptions can be liberalized. You can waive the assumption. So, we have waived the assumption that cost structure must be linear and we have allowed semi-variable cost. That is why you have got multiple BP's but there is no multiple PV ratio. Unless and until the selling price and variable cost do not change there will be only one PVR. Concessional fee if you remember we have discussed about special pricing. Say for government contracts in one of our earlier cases this is similar. This is also a special pricing for the municipal school students so that we can charge them lower fees. And we are able to take them just at 108 without any loss to our own students. And the C part was simple. We had to just calculate the average cost and you can see that average cost normally goes down. But in some cases it can go up also like it has happened for 160 students when you compare with 150 students. Are you getting it? So with this we will stop this case. Namaste. Thank you.