Question

following records are available from the accounting records of parlok co. Ltd:
year sales (Rs.) profit & loss (Rs.)
2005. 25000. 5000 loss
2006. 75000. 5000 profit

find out.
a. P/V ratio
b. fixed cost
c. marginal cost for 2005 and 2006
d. B.E.P
e. margin of safety for the profit of rs. 10000​

Answer 1

Given:

year sales (Rs.) profit & loss (Rs.)

2005. 25000. 5000 loss

2006. 75000. 5000 profit

To find:

a. P/V Ratio:

$pv \: ratio = \frac{change \: in \: profit}{changes \: in \: sales}$

$pv \: ratio = \frac{5000 - ( - 5000)}{75000 - 25000}$

P/v ratio = 1/5

b. Fixed Cost:

$pv \: ratio = \frac{fixed \: cost \: + profit}{sales}$

$\frac{1}{5 } = \frac{fixed \: cost + 5000}{75000}$

Fixed cost = 10,000

C. Marginal cost for 2005& 2006:

marginal cost means variable cost.

For 2005:

Sales - variable cost = Fixed cost + profit

Variable cost= 25,000-10,000+5000

Variable cost= 20,000

For 2006,

Sales - variable cost = Fixed cost + profit

Variable cost= 75,000-10,000-5000

Variable cost= 60,000

d. Break even point:

$break \: even \: point = \frac{fixed \: cost}{pv \: ratio}$

$break \: even \: point = \frac{10000}{ \frac{1}{5} }$

break even point= 50,000

e.margin of safety for 10,000 profit

$margin \: of \: safety \: sales= \frac{fixed \: cost + profit}{pv \: ratio}$

$margin \: of \: safety \: sales= \frac{ 10000+ 10000}{ \frac{1}{5} }$

margin of safety for 10,000 profit= 1,00,000