Question

The following information is obtained from ABC Ltd. and XYZ Ltd. in a year.

Particulars	ABC Ltd.(Rs.)	XYZ Ltd.(RS.)
Sales	3,00,000	3,00,000
(-) Variable Cost	2,00,000	2,25,000
(- ) Fixed Cost	50,000	25,000
Estimated Profit	50,000	50,000

You are required to calculate for each company.
(i) Profit Volume Ratio and Break Even Point.
(ii) Margin of Safety.

Answer 1

ABC Ltd.		XYZ Ltd.
Particulars	(Rs.)	Particulars	(Rs.)
Sales	3,00,000	Sales	3,00,000
(-) Variable Cost	2,00,000	(-) Variable Cost	2,25,000
Contribution	1,00,000	Contribution	75,000
(-) Fixed Cost	50,000	Fixed Cost	25,000
Profit	50,000	Profit	50,000
(i) P/V Ratio `="C"/"S"xx100` `=(1,00,000) / (3,00,000)xx100` = 33.33% BEP `="FC"/"P/V Ratio"` `=(50,000) / (33.33%)` = Rs. 1,50,015  (ii) Margin of Safety = Actual Sales (-) BEP Sales = Rs. 3,00,000 (-) Rs. 1,50,015 = Rs. 1,49,985		P/V Ratio `-"C"/"S"xx100` `=(75,000)/(3,00,000)xx100` = 25% BEP = `"FC"/"P/V Ratio"` `=(25,000)/(25%)` = Rs. 1,00,000 (ii) Margin of Safety = Actual Sales (-) BEP Sales = Rs. 3,00,000 (-) Rs. 1,00,000 = Rs. 2,00,000