Question
A company reports total sales of ₹6,00,000 and earns a
contribution of ₹2,40,000. Its Margin of Safety is ₹1,50,000. Based on this information, determine the fixed cost of the company.Solution
P/V Ratio = Sales/Contribution = 6,00,000/2,40,000 = 40% Profit = PV Ratio * Margin of Safety = 40% x 1,50,000 = 60,000 Contribution = Fixed cost + Profit Or, Fixed cost = Contribution – Profit = 2,40,000 – 60,000 = Rs.1,80,000
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