1 ) Calculate the company's CM ratio also explain the use of CM ratio for the organization

in terms of planning business operations?

Ans.

Contribution Margin = Total Revenue - Variable Cost

Total Revenue

CM = 960,000.00 -52,000.00____

960,000.00

CM = 0.945

CM Ration Significance.

CM which is known as Contribution margin is the ratio of the entire

contribution margin to total sales revenue. It is used in

actual profit and break-even scenario analyzing purpose & might be

used to instantly to evaluate for the effect on profits of a varying in sales receipts.

2 ) Calculate the company's break-even point in terms of units and rupees with the help of
equation methodology.

Ans.
Break Even Point = Total Fixed Cost
Selling price per unit – Variable price per unit

Break Even point = 210,000.00

16.00 -08.00

Break Even Point = 26,250 x 16 = 420,000

3 ) Assuming that the sales will increase Rs. 400,000 next year then how much change will
be witnessed in the operating income of the company?

Ans.
Hint: Use CM ratio to compute your answer

Changes in Operating income = CM Ration x Increase in sale

Changes in Operating income = 0.945*400,000

Changes in Operating Income = 378,000

4 ) If the target profit set by the management is Rs. 450,000 then how many units should
the company sell? (With reference to original data)

ANS.

Number of Units to be sold = Target Profit = Unit CM *Q – Fixed Exp.

Number of Units to be sold = 450,000 = 08*Q -210,000

Number of Units to be sold = 82,500

5 ) Calculate margin of safety in term of both number of units and rupees.

Margin of Safety Current Sale – Break even

Margin of Safety = 960,000- 420,000 = 540,000