Question

units produced 5000 @ 20/- direct expenses rupees 5,000 four fifth of the units was sold at the rate of 25 per unit what will be the profit?

Answer 1

Solution: Let’s find out relative profitability so that we can compare it later on.
Products A B C Total
Rs. Rs. Rs. Rs.
Sales 1, 50, 000 90, 000 60, 000 3, 00, 000
Variable Cost 1, 20, 000 63, 000 36, 000 2, 19, 000
Contribution 30, 000 27, 000 24, 000 81, 000
Fixed Cost 40, 500
Profit 40, 500
P/V Ratio 20% 30% 40% 27%
From the above table it is clear that with the comparison of product B and C, A is
less profitable. Keeping total production same, company should change the sales
mix in a way that emphasis should be on producing product C and B.  
Now assume that the company decides to use its production capacity more for
product B and C than A. Let’s see the effect on profit if sale of product B and C is
increased by Rs. 30, 000 each and product A by reducing Rs. 60, 000.
Products A B C Total
Rs. Rs. Rs. Rs.
Sales 90, 000 1, 20, 000 90, 000 3, 00, 000
Variable Cost 72, 000 84, 000 54, 000 2, 10, 000
Contribution 18, 000 36, 000 36, 000 90, 000
Fixed Cost 40, 500
Profit 49, 500
From the above table, we can observe that proposed change in product mix leads to
an increase in profit from Rs.40, 500 to Rs. 49, 500.