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The following suggestions are under consideration:
(a) 10% reduction in price to yield an increase
in sales volume from 6600
to 7400 units.
Current unit price Rs. 1,000
Unit variable cost Rs. 500
Fixed cost Rs. 30,00,000
Prepare a statement comparing gross revenue, profit,
contribution and P/V ratio of the two alternatives with
present results. Which suggestion would you recommend?
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Answer Posted / george
Comparative Statement
Units Price/
unit Total
Sales 6600 1000 6600000
Less: V.cost 6600 500 3300000
Contribution 3300000
Less: F.cost 3000000
Profit 300000
P/V Ratio C/S*100 50
Units Price/
unit Total
Sales 7400 900* 6660000
Less: V.cost 7400 450 3330000
Contribution 3330000
Less: F.cost 3000000
Profit 330000
P/V Ratio 50%
It is most recommanded to produce 7400 unit with 10% of
reduction of sale price per unit as it has resulted in an
increase of net profit of 30000.
*Means revised sales price /unit
Sale/unit = 1000
Redection in yield to price as a result of increase in
volume = 10%
Hence revised sales price /unit = 1000 x (100-10)% = 900
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