Question

You are given the following data:
Year            sales            profit
2018           GHc 120, 000       8000
2019           GHc 140, 000       13,000
Find out:
i.   P/V ratio
ii.   Break-even point
iii.   Profit when sales are GHc 180,000
iv.   Sales required to earn a profit of GHc 12,000
v.   Margin of safety in year 2019.

Answer 1

MARGINAL COSTING

i CALCULATION OF P/V RATIO

P/V RATIO = ( CHANGE IN PROFIT / CHANGE IN SALES ) * 100

CHANGE IN PROFIT = 13000- 8000

= 5000

CHANGE IN SALES = 1,40,000- 1,20,000

= 20,000

therefore, p/v ratio = ( 5000 / 20000 ) * 100

= 25%

ii CALCULATION OF BREAK EVEN POINT

BREAK EVEN SALES = FIXED COST / P/V RATIO

FIXED COST = (SALES * P/V RATIO ) - PROFIT

= ( 1,20,000* 25% ) - 8000

= GHc 22,000

therefore, BEP = 22,000/ 25%

= 88,000

iii CALCULATION OF PROFIT WHEN SALES ARE AT GHc 1,80,000

PROFIT AT SALES GHc 1,80,000 = (SALES * P/V RATIO ) - FIXED COST

= ( 1,80,000 * 25% ) - 22,000

= 45,000 - 22,000

= GHc 23,000

iv CALCULATION OF SALES REQUIRED TO EARN A PROFIT OF GHc 12,000

SALES AT PROFIT GHc 12,000 = (FIXED COST + DESIRED PROFIT ) / P/V RATIO

= ( 22,000 + 12,000 ) / 25%

= GHc 1,36,000

V CALCULATION OF MARGIN OF SAFETY IN YEAR 2019

MARGIN OF SAFETY = PROFIT / P/V RATIO

PROFIT FOR 2019 = 13,000

P/V RATIO = 25%

therefore margin of safety = 13,000 / 25%

= GHc 52,000