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Abc Companyltd. Furnishe.S the Following Data. - Cost Accounting(Financial Accounting and Auditing 10)

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.

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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

 

Concept: Marginal Cost - Margin of Safety (Mos)
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