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

 

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

 

Posted Date: 2/7/2013 1:12:59 AM | Location : United States

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