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Question
The following data relate to a company:
| Year Ended | Total Sales (Rs.) | Total Cost (Rs.) |
| 31-3-2017 | 22,23,000 | 19,83,600 |
| 31-3-2018 | 24,51,000 | 21,43,200 |
Assuming stability in prices, with variable costs carefu11y controlled to reflect determined relationships and an unvarying figure for fixed costs, calculate :
(i) The P/V ratio, (ii) Fixed Cost, (iii) Fixed Cost as % of Sales, (iv) BEP, and (v) Margin of Safety for years 2017 and 2018.
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Solution
(i) P/V Ratio `="Change in Profits"/"Change in Sales"xx100`
`=("Rs."68,400)/("Rs."2,28,000)xx100`
= 30%
(ii) Fixed Cost : PN. ratio is 30%, it means Contribution (C) is also 30% of Sales.
Contribution `=30/100xx22,23,000`
= Rs. 6,66,900 (As on 31-3-2017)
Contribution (C)-FC = Profit/(Loss)
Rs. 6,66,900 - FC = Rs. 2,39,400
FC = Rs. 4,27,500 (As on 31-3-2017)
For 31-3-4018 also, FC = Rs. 4,27,50 (Rs. 7,35,300 - Rs. 3,07,800)
Thus, Fixed cost for both the period remains constant.
(iii) Fixed Cost as % of Sales :
As on 31-3-2017 `=("Rs."4,27 ,500)/("Rs."22,23,000)xx100=` 19.23%
As on 31-3-2018 `=("Rs."4,27 ,500)/("Rs."24,51,000)xx100=` 17.44%
(iv) BEP : `="F.C."/"P/V Ratio"`
`=("Rs."4,27,500)/(30%)`
`= "Rs." 4,27,500 xx100/30`
= Rs. 14,25,000
(v) Margin of Safety (MOS) :
MOS for 31-3-2017 = Actual Sales - BEP Sales
= Rs. 22,23,000 - Rs. 14,25,000
= Rs. 7,98,000
MOS Ior 31-3-2018 = Actual Sales - BEP Sales
= Rs. 24,51,000 - Rs. 14,25,000
= Rs. 10,26,000
