The Directors of Steel Manufacturing Co. gives the following information.

Sales - (1,00,000 units) | (Rs.) 1,00,000 |

Variable Costs | (Rs.) 40,000 |

Fixed Costs | (Rs.) 50,000 |

(i) Find out PN Ratio, Break Even Point & Margin of Safety.

(ii) In case of 20% increase In Physical Sales Volume, calculate P/V Ratio, Break Even Point & Margin of Safety.

#### Solution

**(i)** Contribution = S - VC

∴ Contribution = Rs. 1,00,000 (-) Rs. 40,000

Contribution = Rs. 60,000

**P/V Ratio **= `"C"/"S"xx100`

`= ("Rs." 60,000)/("Rs." 1,00,000)xx100` = 60%

BEP =`"Fixed Cost"/"P/V Ratio"`

`=("Rs."50,000)/(60%)`

= Rs. 83,333.33

Margin of Safety (MOS) - Actual Sales (-) BEP Sales

= Rs. 1,00,000 (-) Rs. 83,333

= Rs. 16,667

**(ii) 20% Increase in Physical Sales Volume :**

Present Sales Volume 1,00,000 Units**Add** : 20% Increase 20,000 Units

1,20,000 Units

Existing Sales = 1/- per unit (Rs. 1,00,000 + 1,00,000 Units)

∴ New Revised Sales 1,20,000 Units x Rs. 1 = Rs.1,20,000

Now, Contribution = S - VC

∴ Revised Contribution = Rs. 1,20,000 (-) Rs. 40,000

∴ Revised Contribution = Rs. 80,000

**Revised P/V Ratio **`="C"/"S"xx100`

`=(80,000)/(1,20,000)xx100`

**= 66.67%**

**Revised BEP =** `"FC"/"P/V Ratio"`

`=("Rs."50,000)/(66.67%)`

**= Rs. 74,996.25**

**Revised Margin of Safety = **Actual Sales (- ) BEP Sales

= Rs. 1,20,000 (-) Rs. 74,996.25

**= Rs. 45,003.75**