ABC Company Ltd. furnishe.s the following data.

(Rs.)

Sales | 1,50,000 |

Variable Overheads | 1,20,000 |

Gross Profit | 60,000 |

Fixed Overheads | 20,000 |

Net Profit | 40,000 |

Find: (i) P/V Ratio, (ii) BEP, (iii) Net Profit when the Sales are Rs. 4,00,000, (iv) Sales required to earn a Profit of Rs. 80,000, (v) Margin of Safety when the Sales are Rs. 4,00,000.

#### Solution

We first find out Contribution (C) by applying the formula:

Contribution (C} - Sales - Variable Cost

∴ = Rs. 1,50,000 - Rs. 1,20,000

∴ -= Rs. 30,000

**(i) P/V Ratio ** `="Contribution"/"Sales"xx100`

`=(30,000)/(1,50,000)xx100`

**= 20%**

**(ii) BEP (Sales)** `="Fixed Cost"/"P/V Ratio"`

`=("Rs."20,000)/(20%)`

**= Rs. 1,00,000**

**(iii) Net Profit when Sales are Rs. 4,00,000: **

P = (Sales x P/V Ratio) - Fixed Cost

= (Rs. 4,00,000 x 20%) - Rs. 20,000

**= Rs. 60,000**

**(iv) Sales required to earn Profit of 80,000 : Formula : ** S =`"Fixed Cost+ Desired Profit"/"P/V Ratio"`

`=(20,000+"Rs."80,000)/(20%)`

**= Rs. 5,00,000**

**(v) Margin of Safety when the Sales are Rs. 4,00,000 :**

**Formula: ** Margin of Safety = Actual Sales - B.E.P. Sales

= Rs. 4,00,000 - Rs. 1,00,000

**= Rs. 3,00,000**