The profit volume ratio of a company is 50% and the margin of safety is 40%. Calculate net- profit if…
In marginal costing, Net Profit can be directly computed as Sales multiplied by the Profit-Volume (P/V) Ratio and the Margin of Safety Ratio, or equivalently as Margin of…
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The profit volume ratio of a company is 50% and the margin of safety is 40%. Calculate net- profit if the sales volume is 1,00,000.
Answer and explanation
Correct answer C
In marginal costing, Net Profit can be directly computed as Sales multiplied by the Profit-Volume (P/V) Ratio and the Margin of Safety Ratio, or equivalently as Margin of Safety (in rupees) multiplied by the P/V Ratio. Here, Margin of Safety = 40% of Rs. 1,00,000 = Rs. 40,000, and Net Profit = Rs. 40,000 * 50% = Rs. 20,000.
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UGC NET Commerce