A profit/volume (P/V) chart of two companies (A and B) for a period follows: 100 75 Company A Company B Profit 50 RM1000 25 0 Sales revenue 50 100 200 250 3000 300 450 500 1550 1600 550*2600 RM1000 25 50 75 Loss 100 RM000 125 150 175 200 By reference to the above chart, justify your conclusion to: a. I. Estimate the break-even sales revenue of Company A. (5 marks) ii. Estimate the total fixed costs of Company A. (5 marks) iii. State which company has the higher contribution/sales ratio. (5 marks) iv. Estimate the level of sales at which the profit of the two companies is the same. (5 marks) b. Calculate the contribution/sales ratio of Company A and use this to confirm, by calculation, the break-even point identified in Question 4 (a)(i) above. (5 marks) This question requires another version of formula of break even to estimate breakeven sales revenue, fixed cost. Part A PV ratio is relationship between contribution and sales revenue. Since, no contribution margin is used, use profit margin instead. The term profit margin is calculated when company is using absorption costing method. Contribution margin is calculated when company is using marginal costing method. However, the accounting and costing syllabus do not have topic called absorption versus marginal costing method. Therefore P/N ratio formula is Profit/Revenue From the slides, fixed cost can be derived using the formula. Sales revenue formula (RM) Fixed costs + Required profits PV ratio Sales revenue formula (Unit) Fixed costs + Required profits One unit contribution For part A, the question requires justification, meaning just provide estimate number of break even Sales revenue, fixed costs. There is no need for accurate number. Marks will be awarded for explanation on observation of PV chart for Company A and B. Part b Calculate the contribution/sales ratio of Company A and use this to confirm, by calculation, the break-even point identified in Question 4 (a)(i) above. (5 marks) Guide: Use this formula ie PN ratio formula is Profit margin/Revenue Assume contribution same as profit margin