Question

Ganesh Ltd. budgets for a production of 250000 units. The variable cost per unit is Rs.15 and fixed cost per unit is Rs.3 per unit. The company fixes the selling price to fetch a profit of 20% on cost. Compute the profit/volume ratio.​

Answer 1

Explanation:

answer I needed to get an idea

Answer 2

Given,  

The production budget of $2,50,000$ units

The variable cost per unit is Rs.$15$ per unit

The fixed cost per unit is Rs. $3$ per unit

Profit is $20%$% of the cost

To Find,

Profit/Volume ratio

Solution,

We need to first calculate the total cost which is $15 + 3 = 18$ per unit

Profit is given at $20$% of the cost which is $\frac{20}{100}$ × $18 = 3.6$

The sales price is Cost $+$ Profit which is $21.6$

The total fixed cost is $2,50,000$ units × $3$ $= 7,50,000$

The equation which is used to calculate contribution is:

Contribution per unit = Selling price - Variable cost  = $21.6 - 15 = 6.6$

Total profit  $=$ Contribution - Fixed cost = $6.6 - 3 = 3.6$

P.V. ratio = Contribution × $\frac{100}{sales}$

$6.6$ × $2,50,000$ × $\frac{100}{54,00,000}$

$16,50,000$ × $\frac{100}{54,00,000}$

$= 30.55$%

Therefore, as calculated above the Profit volume ratio is = $30.55%$%