Effect of Changes in Variable Costs

Assuming an increase of VC by Re 1 a unit for SV Ltd the new contribution margin will be: Rs 3 (Rs 10 – Rs 7) and the revised P/V ratio 0.30 that is. (Rs 3 + Rs 10).

Revised BEP = (Rs 26,(00)/0.30 = Rs 86,667

Desired sales volume to earn existing profit = Rs 38,000/0.30 = Rs 1,26,667

Assuming that variable costs of SV Ltd decline by Re 1 per unit, revised BEP Rs 26.000/0.50 = Rs 52,000.

Desired sales volume to maintain existing profit = Rs 38,000/0.50 = Rs 76,000.

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