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.
Answers
Answer:
Margin of Safety = Rs. 6,00,000
PV Ratio = 25%
Explanation:
Contribution earned by Surya Ltd. = Rs. 2,00,000
Sales = Rs. 8,00,000
Net profit = Rs. 1,50,000
The PV ratio also is known as Profit/Volume Ratio is given by,
= [(Contribution) / (Sales)] * 100%
= [2,00,000 / 8,00,000] * 100%
= (1/4) * 100
= 25%
Now, the margin of safety is expressed as the ratio of Profit and PV ratio.
∴ Margin of safety,
= [1, 50, 000] / [25/100]
= [1, 50, 000/25] * 100
= Rs. 6,00,000
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 = Rs. 6,00,000
Therefore, PV Ratio = 25% and Margin of Safety = Rs. 6,00,000