Example of profit volume graph, Cost Accounting

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Example of Profit Volume Graph

The summary results of a company are given as:

Product                       

A

B         

C

Total

 

Shs.000

Shs.000

Shs.000

Shs.000

Sales revenue  

300

200

100

600

Variable costs

150

120

  70

340

Contribution

 

 

 

260

Fixed costs     

 

 

 

100

Net profit

 

 

 

160

Contribution sales ratio

0.5

0.4

0.3

0.433

Required

1. Prepare a profit volume graph that shows the overall consequences.

2. Prepare an amended profit curve whereas the market forces have led to a switch of Shs. 200,000 of sales from product A to product C

3. Prepare a summary that shows the value of each of the following for both the amended results and the original results

a) Net profit

b) Break-even point

c) Margin of safety

d) Overall contribution sales ratio

Solution

 

2162_Example of Profit Volume Graph.png

The shown profit volume graph displays the existing and amended cost curves.The amended data that implements the switch of Shs. 200,000 of sales to product C from product A may be summarized as:

Product

A

B

C

Total

 

Shs.000

Shs.000

Shs.000

Shs.000

Sales revenue  

100     

200

300

600

Variable costs

  50

120

210

380

Contribution

  50

  80

  90

220

Fixed costs

 

 

 

100

Net profit       

 

 

 

120

Contribution sales ration

    0.50

    0.40

    0.30

     0.367

 


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