Management Consulting/INTERNATIONAL BUSINESS
VK Ltd a multi-product Company, furnishes you the following data relating to the year 2000.
First Half of the year Second Half of the year
Sales Rs. 45,000 Rs. 50,000
Total Cost Rs. 40,000 Rs. 43,000
Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half years periods calculate for the year 2000.
Q1. Marks each.
FIRST HALF SECOND HALF TOTAL
SALES 45000 50000 95000
TOTAL COST 40000 43000 83000
NO CHANGE IN UNIT PRICES
NO CHANGE IN UNIT VARIABLE COSTS
FIXED EXPENSES ARE THE SAME IN BOTH HALVES
VARIABEL COST 27000 30000 57000
FIXED COST 13000 13000 26000
40000 43000 83000
1. The Profit Volume ratio [pvr]
=sales-variable cost / sales
= 95000-57000/95000= 0.40
2. Fixed Expenses=======26000
3. Break-Even Sales
Sales- variable = contribution margin
Break even sales= total annual fixed cost
Contribution margin/total sales
4. Percentage of margin of safety
• Subtract from the projected sales the amount of sales you need to break even. For example, if you anticipate sales of $95,000, but only need $65,000 to break even, subtract $65,000 from $95,000 to get a safety margin of $30,000.
Divide the safety margin by the projected sales to find the margin of safety ratio. In this example, divide $30,000 by $95,000 to get 0.315.
• • 3
Multiply the margin of safety ratio by 100 to find the margin of safety percentage. In this example, multiply 0.315 by 100 to get an 3.15 percent margin of safety.