Question
A company has Fixed Costs of ₹2,00,000, a contribution
margin ratio (P/V ratio) of 25%, and it achieved total sales of ₹10,00,000. Calculate the profit earned and Margin of Safety, is it comfortable.Solution
Contribution = Sales × P/V = ₹10,00,000 × 25% = ₹2,50,000 Profit = Contribution – Fixed Cost = ₹2,50,000 – ₹2,00,000 = ₹50,000 BEP Sales = Fixed Cost / P/V = ₹2,00,000 / 0.25 = ₹8,00,000 MoS = ₹10,00,000 – ₹8,00,000 = ₹2,00,000 → 20% of sales → Moderate
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