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The Sales Turnover and Total Cost of M/S. Abc Ltd. Are as Under : - Cost Accounting(Financial Accounting and Auditing 10)

Question

The Sales Turnover and Total Cost of M/s. ABC Ltd. are as under :

Year Sales(Rs.) Total Cost (Rs.)
2017 1,50,000 1,20,000
2018 1,80,000 1,42,500

You are required to calculate:
(a) Profit Volume Ratio, (b) Fixed Cost, (c) Break-even Point, (d) Sales to earn a Profit of Rs. 45,000.

Solution

Year Sales(Rs.) Total Cost (Rs.) Profit (Rs.)
2017 1,50,000 1,20,000 30,000
2018 1,80,000 1,42,500 37,500

(a) P/V Ratio `="Change in Profits"/"Change in Sales"xx100`

`=(7,500 (37,500 - 30,000))/(30,090 (1,80,000 - 1,50,000))xx100`

= 25%

(b) Fixed Cost P/V Ratio is 25%.
∴ Contribution (C) is also 25% of Sales.

∴ Contribution `=25/100xx1,50,000`

= Rs. 37,500

Now,  C- PC = Profit
∴ 37,500 - FC = 30,000
FC = Rs. 7,500 (For Year 2017)

For Year 2018, also,

C- PC = Profit
∴ 45,000 - FC = 37,500
FC = Rs. 7,500 (For Year 2018)

(c) Break-even Point `="FC"/"P/V Ratio"`

`=(7,500)/(25%)`

= Rs. 30,000

(d) Sales to earn a Profit of 45,000

S `="FC (+)Desired Profit"/"P/V Ratio"`

S `=(7,500 (+) 45,000)/(25%)`

S `=(52,500)/(25%)`

S = Rs. 2,10,000

  Is there an error in this question or solution?
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The Sales Turnover and Total Cost of M/S. Abc Ltd. Are as Under : Concept: Break-even Point.
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