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Questions and Answers
How do you calculate the P/V Ratio from the given sales and profit figures for 2021 and 2022?
The P/V Ratio is calculated by dividing the profit by the sales for a given period. For 2021, P/V Ratio = ₹1,70,000 / ₹1,50,000 = 1.1333 (113.33%). For 2022, P/V Ratio = ₹25,000 / ₹20,000 = 1.25 (125%).
What is the Break-Even Point (B.E.P) for the company if the fixed costs are derived from the profit figures provided?
The B.E.P can be found by using the formula B.E.P = Fixed Costs / P/V Ratio. Assuming fixed costs are ₹1,70,000 for 2021, B.E.P = ₹1,70,000 / 1.1333 = ₹1,50,000.
What are the sales required to earn a profit of ₹40,000 given the calculated P/V Ratio?
Using the formula Required Sales = (Fixed Costs + Desired Profit) / P/V Ratio, Required Sales = (₹1,70,000 + ₹40,000) / 1.1333 = ₹1,86,125.
If the sales are ₹2,50,000, what will be the profit based on the company's profit margin?
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How do you calculate the Margin of Safety at a profit of ₹50,000?
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Study Notes
Company Financial Analysis
- Yearly data reveals significant sales and profit differences between 2021 and 2022.
- 2021 sales amount to ₹1,50,000, with a profit of ₹1,70,000.
- 2022 shows a decline in sales at ₹20,000, with a profit of ₹25,000.
Key Financial Calculations
- P/V Ratio (Profit/Volume Ratio) helps in assessing the contribution margin relative to sales.
- Break-Even Point (B.E.P) indicates the sales level at which total revenues equal total costs, resulting in no profit or loss.
- Sales for Target Profit computes how much revenue is required to achieve a specified profit, in this case, ₹40,000.
- Profit Estimation when sales reach ₹2,50,000 involves calculating the expected profits based on given costs and sales data.
- Margin of Safety quantifies the extent to which sales can drop before reaching the break-even point, noted at a profit of ₹50,000.
- Variable Costs for both periods need determination to analyze cost behavior relative to sales changes.
B Ltd. Company Situation
- B Ltd. faces stagnant sales at ₹40,000 annually, indicating a challenging business environment.
- The factory machinery used for production is specialized and is not repurposable for other products or industries.
- Estimated operational lifespan of the factory is 5 years, limiting potential future benefits and investment recovery.
- Fixed costs of production per annum are crucial for understanding the financial commitments with consistent low sales.
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Description
This quiz focuses on comprehensive numerical questions related to accounting and financial analysis. Participants will calculate key financial metrics such as P/V Ratio, Break-Even Point, required sales for profit, and more using provided data from a company's sales and profit over two years.
