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

Answer:

one unit cost 18 then 250000units*18=4500000profit ratio on total cost is 20% then 4500000*20%=900000profit,then total volume=5400000(4500000cost+900000profit)here we need to calculate profit volume ratio=900000÷5400000*100=16.666667 or 16.67 %

Answer 2

ANSWER :

• ❖ If Ganesh Ltd. budgets for a production of 2,50,000 units, the variable cost per unit is Rs. 15, fixed cost per unit is Rs. 3 per unit and the company fixes the selling price to fetch a profit of 20% on cost; then the Profit Volume Ratio will be 30.55 %.

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SOLUTION :

❒ Given :-

• Ganesh Ltd. budgets for a production of 2,50,000 units.

• The variable cost is Rs. 15 per unit.

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

• The company fixes the selling price to fetch a profit of 20% on cost.

❒ To Compute :-

• Profit Volume Ratio = ?

❒ Required Formula :-

• $\dag \: \: \underline{ \boxed{ \sf{ \: Profit \: \: Volume \: \: Ratio = \dfrac{ Contribution \: \: Per \: \: Unit}{ Sale \: \: Price} \times 100}}}$

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❒ Calculation :-

Here,

• Variable Cost per unit = Rs. 15

• Fixed Cost per unit = Rs. 3

• Profit = 20% on Cost

So,

Calculating the Budgeted Cost Price Structure, we get,

• ✠ Variable Cost per unit = Rs. 15

Add : Fixed Cost per unit = Rs. 3

• ➝ Total Cost = Rs. 18

Add : Profit (20% of cost) = Rs. 3.60

• ➜ Sale Price = Rs. 21.60

Again,

• ✠ Contribution per unit = Sale Price - Variable Cost

➜ Contribution per unit = Rs. 21.60 - Rs. 15

➜ Contribution per unit = Rs. 6.60

Now,

Using the formula of Profit Volume Ratio, we obtain,

• $\bigstar \: \tt{ \: Profit \: \: Volume \: \: Ratio = \dfrac{ Contribution \: \: Per \: \: Unit}{ Sale \: \: Price} \times 100}$

$\implies \: \tt{ \: Profit \: \: Volume \: \: Ratio = \dfrac{Rs. \: 6.60}{Rs. \: 21.60} \times 100}$

$\implies \: \tt{ \: Profit \: \: Volume \: \: Ratio = \dfrac{Rs. \: 660}{Rs. \: 21.60}}$

$\therefore\: \tt{ \: Profit \: \: Volume \: \: Ratio = \underline{30.55 \: \%}}$