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
