Question

The record of Rao Ltd. are as follows:
2018 Sale- 345000 total cost - 312000
2019 sale - 390625 total cost - 321250

Find out :
(i) Profit Volume Ratio
(ii) Fixed Cost
(iii) Break-Even Point
(iv) Profit or loss on the sales of * 1,50,000
(v) Profit on the sales of 8,00,000​

Answer 1

Answer :

Profit Volume Ratio of 2018 : 0.095 or 9.5%

Profit Volume Ratio of 2019 : 0.176 or 17.6%

Fixed Cost of 2018 : 312000

Fixed Cost of 2019 : 321250

Break-Even Point of 2018 : 3284210.52

Break-Even Point of 2019 : 1827989.77

Profit or loss on the sales of * 1,50,000 of 2018 : 14,750

Profit or loss on the sales of * 1,50,000 of 2019 : 26,750

Profit on the sales of 8,00,000​ of 2018 : 76,000

Profit on the sales of 8,00,000​ of 2019 : 142,000

Explanation :

To Find,

• Profit Volume Ratio

• Fixed Cost

• Break-Even Point

• Profit or loss on the sales of * 1,50,000

• Profit on the sales of 8,00,000​

Given,

2018 : Sale- 345000

Total cost - 312000

2019 : Sale - 390625

Total cost - 321250

• To calculate the Profit Volume Ratio (PVR), we need to find the profit and then divide it by the sales.

2018: P = 345000 - 312000 = 33000

PVR = P/S = 33000/345000 = 0.095 or 9.5%

2019: P = 390625 - 321250 = 68,375

PVR = P/S = 68375/390625 = 0.176 or 17.6%

• Fixed Cost is the cost that does not change with the level of production or sales. It can be calculated by subtracting the variable cost from the total cost.

2018: Total cost = 312000, Variable cost = 312000-Fixed cost

2019: Total cost = 321250, Variable cost = 321250-Fixed cost

• To find the Break-Even Point (BEP) in sales, we need to divide the fixed costs by the Profit Volume Ratio (PVR) or Contribution Margin Ratio (CMR).

2018: BEP = Fixed cost / PVR = 312000 / 0.095 = 3284210.52

2019: BEP = Fixed cost / PVR = 321250 / 0.176 =  1827989.77

• To find the profit or loss on sales of 1,50,000, we need to subtract the variable costs from the sales.

2018: P = 1,50,000 - (1,50,000*(total cost/sale)) = 1,50,000 - (1,50,000*(312000/345000)) = 1,50,000 - (1,50,000*(0.905)) = 1,50,000 - (1,35,250) = 14,750

2019: P = 1,50,000 - (1,50,000*(total cost/sale)) = 1,50,000 - (1,50,000*(321250/390625)) = 1,50,000 - (1,50,000*(0.824)) = 1,50,000 - (1,236,250) = 26,750

In 2018 and 2019, the company made a profit of 14,750 and 26,750 respectively on the sales of 1,50,000.

• To find the profit on sales of 8,00,000, we need to subtract the variable costs from the sales.

2018:  P = 8,00,000 - (8,00,000*(total cost/sale) = 8,00,000 - (8,00,000*(312000/345000) = 8,00,000 - (8,00,000*(0.905) = 8,00,000 - (7,24,000) = 76,000

2019: P = 8,00,000 - (8,00,000*(total cost/sale) = 8,00,000 - (8,00,000*(321250/390625) = 8,00,000 - (8,00,000*(0.824) = 8,00,000 - (6,58,000) = 142,000

In 2018 and 2019, the company made a profit of 76,000 and 142,000 respectively on the sales of 8,00,000.

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