Question

A company producing single article sales at Rs. 10 each. The Marginal Cost of Production is Rs. 6 and Fixed Cost is Rs. 400 p.a.
Calculate : (a) P/V Ratio, (b) Break-even Sales, (c) The Sales to earn Profit of Rs. 500, and (d) Profit at Sales of Rs. 3,000.

Answer 1

Contribution (C) = Sales (S) - Variable Cost (VC)
= 10-6
= Rs. 4

(a) P/V Ratio `="C"/"S"xx100`

`=4/10xx100`

= 40%

(b) BEP (Sales) = `"FC"/"P/V ratio"`

`=400/(40%)`

`=400/1xx100/40`

= Rs. 1000

(c) The Sales to Earn-Profit of 500

S = `"FC (+) Desired Profit"/"P/V Ratio"`

∴ S `=(400 (+) 500)/(40%)`

∴ S = `900/1xx100/40`

= Rs. 2,250

(d) Profit at Sales of' 3,000 :

P = (Sales x PN ratio) - FC.

`=(3,000xx40/100)-400`

= 1,200 - 400

= Rs. 800