Question

Sale of a product amounts to 200 unit per month at 10 per unit. Fixed cost rupees 400 per month and variable cost Rs 6 per unit there is a promise to reduce the selling price by 10% calculate the present and future PV ratio and if found by apply PV ratio how many unit must to sold to maintain total profit

Answer 1

Given:

The sale of a product amounts to 200 units per month at 10 per unit. Fixed cost rupees 400 per month and variable cost Rs6 per unit there is a promise to reduce the selling price by 10%

To Find:

calculate the present and future PV ratio and if found by applying PV ratio how many units must to sold to maintain total profit

Solution:

The formula for profit volume ratio (PV)is,

$PV=\frac{contribution per unit }{SP per unit} *100$

Now the calculation for contribution per unit(CPU) is,

$CPU=SP unit^{-1}-variable cost unit^{-1}\\=10-6\\=4unit^{-1}$

Now PV ratio will be,

$PV=\frac{4}{10} *100\\=40\%$

If the selling price is reduced by 10% new selling price per unit is equal to (10-10%*10)=9

New contribution per unit is equal to new selling price per unit minus variable cost per unit=9-6=3

The new PV ratio is,

$PV_{new}=\frac{3}{9}*100\\=33.33\%$

Present profit=contribution per unit*sales quantity-fixed cost

=200*4-400

=400

Computation of sales quantity at a present profit,

$sales quantity=\frac{fixed cost+ present profit}{new contribution per unit} \\=\frac{400+400}{3}\\=267$

Hence, the present PV is40%, future PV is 33.33% and sales quantity at a present profit is 267 units.