The following data are available from the records of a company:
Sales Rs. 60,000
Variable Cost Rs. 30,000
Fixed Cost Rs. 15,000
You are required to :
(a) Calculate the P/V Ratio, Break – Even Point and Margin of Safety at this level.
(b) Calculate the effect of 10% increase in the sale price.
(c) Calculate the effect of 10% decrease in the sale price.
Answers
a. P/V ratio is 50%
BEP is Rs 30,000
Marginal Safety is Rs 30,000
b. P/ V ratio is 54.55%
c. P/V ratio is 44.44%
Explanation:
a.
Computing the P/V ratio
P/V ratio = Contribution / Sales
where
Contribution = Sales - Variable Cost
= Rs 60,000 - Rs 30,000
Contribution = Rs 30,000
Sales is Rs 60,000
Putting the values above:
P/V ratio = Rs 30,000 / Rs 60,000
P/V ratio = 50%
At break- even point (BEP)
= Sales × P/V ratio
= Rs 60,000 × 50%
= Rs 30,000
At Margin of Safety (M/S)
= Sales × P/V ratio
= Rs 60,000 × 50%
= Rs 30,000
b.
In this case, there is 10% increase in sales. So,
Increase in Sales = Rs 60,000 × 10%
= Rs 6,000
Therefore, New Sales would be Rs 66,000 (Rs 60,000 + Rs 6,000)
Computing Contribution as:
Contribution = Sales - Variable Cost
= Rs 66,000 - Rs 30,000
= Rs 36,000
P/V ratio = Contribution/ Sales
= Rs 36,000 / Rs 66,000
= 54.54%
c.
In this case, there is 10% decrease in sales. So,
Decrease in Sales = Rs 60,000 × 10%
= Rs 6,000
Therefore, New Sales would be Rs 54,000 (Rs 60,000 - Rs 6,000)
Computing Contribution as:
Contribution = Sales - Variable Cost
= Rs 54,000 - Rs 30,000
= Rs 24,000
P/V ratio = Contribution/ Sales
= Rs 24,000 / Rs 54,000
= 44.44%
You can learn more from here about P/V ratio:
https://brainly.in/question/1511738
You can learn more from here about Break even point (BEP):
https://brainly.in/question/1637465