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A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety?
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A company produces 300 unit of a single article and sell it at 200 eac...
Calculation of PV Ratio:
The PV ratio, also known as the Contribution Margin Ratio, is calculated by dividing the contribution margin by the selling price.
Contribution Margin = Selling Price - Marginal Cost
Contribution Margin = $200 - $120 = $80
PV Ratio = (Contribution Margin / Selling Price) * 100
PV Ratio = ($80 / $200) * 100 = 40%
Calculation of Break-Even Point (BP):
The Break-Even Point is the level of sales at which the company neither makes a profit nor incurs a loss. It can be calculated using the formula:
BP = Fixed Costs / PV Ratio
Given that the fixed cost for the month is $8000 and the PV ratio is 40%, we can substitute these values into the formula:
BP = $8000 / 40% = $20,000
Therefore, the Break-Even Point for the company is $20,000.
Calculation of Margin of Safety:
Margin of Safety represents the difference between the actual sales and the break-even sales. It indicates the cushion available to the company in case of a decline in sales.
Margin of Safety = (Actual Sales - Break-Even Sales) / Actual Sales * 100
To calculate the Margin of Safety, we need to know the actual sales. Let's assume the company sold all 300 units.
Total Sales = Selling Price * Number of Units
Total Sales = $200 * 300 = $60,000
Break-Even Sales = BP = $20,000
Margin of Safety = ($60,000 - $20,000) / $60,000 * 100 = 66.67%
Therefore, the Margin of Safety for the company is 66.67%.
Explanation:
The PV ratio is a measure of the profitability of the product. In this case, the PV ratio is 40%, which means that for every dollar of sales, the company earns a contribution margin of $0.40.
The Break-Even Point is the level of sales at which the company covers all its costs and does not make a profit or loss. In this case, the Break-Even Point is $20,000, meaning that the company needs to generate at least $20,000 in sales to cover its fixed costs.
The Margin of Safety indicates the cushion available to the company in case of a decline in sales. In this case, the Margin of Safety is 66.67%, which means that sales can decline by 66.67% before the company starts incurring losses.
Overall, these financial measures provide insights into the profitability and risk of the company's operations. The PV ratio helps in understanding the contribution of each unit sold, while the Break-Even Point and Margin of Safety help in assessing the company's financial stability.
The PV ratio, also known as the Contribution Margin Ratio, is calculated by dividing the contribution margin by the selling price.
Contribution Margin = Selling Price - Marginal Cost
Contribution Margin = $200 - $120 = $80
PV Ratio = (Contribution Margin / Selling Price) * 100
PV Ratio = ($80 / $200) * 100 = 40%
Calculation of Break-Even Point (BP):
The Break-Even Point is the level of sales at which the company neither makes a profit nor incurs a loss. It can be calculated using the formula:
BP = Fixed Costs / PV Ratio
Given that the fixed cost for the month is $8000 and the PV ratio is 40%, we can substitute these values into the formula:
BP = $8000 / 40% = $20,000
Therefore, the Break-Even Point for the company is $20,000.
Calculation of Margin of Safety:
Margin of Safety represents the difference between the actual sales and the break-even sales. It indicates the cushion available to the company in case of a decline in sales.
Margin of Safety = (Actual Sales - Break-Even Sales) / Actual Sales * 100
To calculate the Margin of Safety, we need to know the actual sales. Let's assume the company sold all 300 units.
Total Sales = Selling Price * Number of Units
Total Sales = $200 * 300 = $60,000
Break-Even Sales = BP = $20,000
Margin of Safety = ($60,000 - $20,000) / $60,000 * 100 = 66.67%
Therefore, the Margin of Safety for the company is 66.67%.
Explanation:
The PV ratio is a measure of the profitability of the product. In this case, the PV ratio is 40%, which means that for every dollar of sales, the company earns a contribution margin of $0.40.
The Break-Even Point is the level of sales at which the company covers all its costs and does not make a profit or loss. In this case, the Break-Even Point is $20,000, meaning that the company needs to generate at least $20,000 in sales to cover its fixed costs.
The Margin of Safety indicates the cushion available to the company in case of a decline in sales. In this case, the Margin of Safety is 66.67%, which means that sales can decline by 66.67% before the company starts incurring losses.
Overall, these financial measures provide insights into the profitability and risk of the company's operations. The PV ratio helps in understanding the contribution of each unit sold, while the Break-Even Point and Margin of Safety help in assessing the company's financial stability.
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A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety?
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A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety?.
A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A company produces 300 unit of a single article and sell it at 200 each the marginal cost of production is 120 per unit and fixed cost for the month is 8000 find out PV ratio BP and margin of safety?.
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