From the following information, calculate PVR, BEP Sales, Contribution, Variable Cost, and Fixed Cost.
Production (Units): 10,000
Sales Rs.: 50,000
Variable Cost Rs.: 10,000
Fixed Cost Rs.: 20,000
Sales (Units): 10,000
Sales (per unit): Rs. 5
Variable Cost (per unit): Rs. 1
In order to earn a profit of Rs. 30,000, what would be the amount of sales?
Answer (1)
To solve this problem, we'll calculate the following financial metrics one by one:
Contribution : This is the difference between Sales and Variable Costs. It tells us how much of the revenue is contributing to fixed costs and profit.
Sales (per unit) = Rs. 5 Variable Cost (per unit) = Rs. 1
Total Contribution: Contribution per unit = Sales per unit − Variable Cost per unit = 5 − 1 = Rs. 4 Total Contribution = Contribution per unit × Sales (Units) = 4 × 10 , 000 = Rs. 40 , 000
Variable Cost : Calculated as the number of units sold multiplied by the variable cost per unit. Variable Cost = Variable Cost per unit × Units Sold = 1 × 10 , 000 = Rs. 10 , 000
Fixed Cost : Given in the problem as Rs. 20,000.
Profit-Volume Ratio (PVR) : This ratio helps in determining the relationship between contribution and sales. PVR = ( Sales Contribution ) × 100% PVR = ( 50 , 000 40 , 000 ) × 100% = 80%
Break-Even Point (BEP) Sales : This refers to the sales level at which total revenue equals total costs (both fixed and variable), resulting in zero profit. BEP Sales = PVR Fixed Costs = 0.8 20 , 000 = Rs. 25 , 000
Sales for Desired Profit : To find the sales needed to achieve a Rs. 30,000 profit, we'll use the formula: Required Sales = PVR Fixed Costs + Desired Profit Required Sales = 0.8 20 , 000 + 30 , 000 = 0.8 50 , 000 = Rs. 62 , 500
So, to earn a profit of Rs. 30,000, the required sales amount would be Rs. 62,500. This comprehensive calculation gives a clear picture of each financial metric based on the given data.
