j45 300 Projected Income Statement at 70 per cent Capacity Sales revenue (7,000 x 1500) 35,00,000 Less: Variable cost (0.60) 21,00,000 Contribution 14.00,000 Less: Fixed costs 10,00,000 Profit 4,00,000 Alternatively, (Expected sales revenue - Break-even sales revenue) X P/V ratio or (Margin of safety) X P/ ratio =35,00,000 - 25,00,000) X 0.40 = 24,00,000 3. Desired sales volume to eam a profit of 60,00,000 - (FC + +60,00,00010.40 - 10,00,000 + 860,00,0000.40 - 1.75,00,000 4. Break-even Point (Revised) at Reduced Selling Price by 10 per cent Sales price 3450 Less: Variable cost (0.60 X 8500) CM 150 P/V ratio (150/450) (%) 33.33 BEP (10,00,000/0.3333) 30,00,000 P.16.13 The question as to which products to stress in order to obtain the most profitable sales-mix has always been of prime importance to businessmen. The amount of profit contribution, or the difference between the selling price and the variable costs, tells how much each product is contributing to fixed costs and profit in the present sales-mix. This information assists management in forming an opinion as to which products will add to profits if sales of these units can be increased. Direct cost data can be utilised in this type of analysis when management seeks an answer to the question: "Which product shall we push? Data Product A Product B Selling price 2126.00 255.00 Variable cost 96.20 Fixed costs 20.70 6.50 Units per hour 45 70 1. What is the amount of net profit for each product? 2. What is the percentage of profit to selling price for each product? 3. What is the amount of profit contribution towards fixed cost and the profit for each product? 4. What is the profit contribution ratio? 5. What is the profit contribution per hour for each product? 6. If one allocates: (a) 200 hours to Product A and 100 hours to Product B or (b) 100 hours to Product A and 200 hours to Product B, which of the two courses is more profitable? 41.80