5 There are four important ways of improving the profit performance of a business: (i) increasing the volume, (ii) increasing the selling price, (iii) Decreasing variable cost, and (iv) decreasing fixed costs. Profit planning is the planning of future operations so as to attain maximum profit. The contribution ratio shows the relative profitability of various sectors of business whenever there is a change in the selling price, variable cost etc. Illustration 4: Two businesses, p Itd. And q Itd. Sell the same type of product in the same type of market. Their budgeted profit and loss accounts for the coming year are as under: P Ltd. Q Ltd Sales 1,50,000 1,50,000 Less: Variable Costs 1,20,000 1,00,000 Fixed Costs 15,000 1,35,000 35,000 1,35,000 Budget Net Profit 15,000 15,000 You are required to: Calculate the break-even point for each business Calculate the sales volume at which each business will earn rs 5,000 Profit State which business is likely to earn greater profit in conditions of: 1. Heavy demand for the product 2. Low demand for the product, and, briefly give your argument also