Question

Surya Ltd. has earned contribution of Rs. 2,00,000 and net profit of Rs. 1,50,000 on sales of Rs. 8,00,000. Calculate the Margin of Safety and PV ratio.

Answer 1

Answer:  The required PV ratio is 25% and the margin of safety is 600000.

Explanation:  Given that Surya Ltd. has earned contribution of Rs. 2,00,000 and net profit of Rs. 1,50,000 on sales of Rs. 8,00,000.

We are to find the Margin of safety and PV ratio.

$\textup{PV ratio}=\dfrac{\textup{contribution}}{\textup{sales}} \times100\%=\dfrac{\textup{200000}}{\textup{800000}}\times100\%=25\%.$

and

$\textup{Margin of safety}=\dfrac{\textup{profit}}{\textup{PV ratio}}=\dfrac{150000}{25}\times100=600000.$

Thus, The required PV ratio is 25% and the margin of safety is 600000.

Answer 2

Explanation:

PV Ratio = Contribution/ Sales × 100

= 2,00,000/8,00,000 ×100

PV Ratio = 25%

Margin of Safety = Profit / PV Ratio

= 1,50,000 / 25%

= 1,50,000 / (25/100)

= 1,50,000 / 0.25

= 6,00,000

Margin of Safety = 6,00,000

Therefore, PV Ratio = 25% and Margin of Safety = 6,00,000