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16. Suppose the break-even sale is Rs. 10 Lakhs. Fixed Costs are Rs. 4 Lakhs: Compute:...

16. Suppose the break-even sale is Rs. 10 Lakhs. Fixed Costs are Rs. 4 Lakhs: Compute: a) Contribution Sales Ratio; b) Sales Price per unit if variable costs are Rs. 12 per unit c) Margin of safety if 80,000 units are sold.

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Answer #1

Break Even sales = 1000,000

Fixed cost = 400,000

1) Contribution Margin ratio =Contribution MArgin / Sales

Contribution Margin = Fixed cost = 400,000

CM ratio = 400,000/1000,000 = 40%

2) Selling Price per Unit if Variabel cost per Unit is Rs 12

Selling Price = Variable cost Per Unit / ( 1- CM ratio )

= Rs 12 /( 1-40%) = Rs 20

3) MArgin of safety :

Break Even Units = Fixed cost / CM per Unit

= 400,000 / ( 20*40%) = 400,000/8 = 50,000 Units

Margin of Safety in Units = 80,000-50,000 = 30,000 Units

In Sales = 30,000*20 =Rs. 600,000

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