Free Monroe Clock Company Essay Sample
Computation of profit volume (PV) Ratio for household timers
Description 
selling price $8unit 
selling priceS.14.70 unit 
Sales of 50,000 units 
400,000 
735,000 
Less : variable costs 50,000 units @ $2/unit 
100,000 
100,000 
Contribution 
300,000 
635,000 
PV ratio : Contribution/sales

75% 
86% 
Contribution per unit 
$6/unit 
S11.07/unit if same PV ratio is to be maintained 
Diagram 1: Computation of PV ratio for 50,000 units
The question is now what the projected units need to be produced and sold in order to maintain a sale price of $11.60 and contribution at the same levels as before that is, contribution levels remain the same
It is evident that in the event of Unit sale price of $11.60, the assumed contribution would be $9.60. This would bring the contribution levels at 82%
In order to bring the contribution levels at the same levels, it is seen that the new variable costs would be $8.78/unit.
This is because at 82% levels the contribution is 9.60 and therefore for 75% levels this is calculated at $8.78
Thus we can calculates as follows
Sales (per unit) $ 11.60
Less: variable costs $ 2.82(Balancing figure)
Contribution $ 8.78(at previous PV ratio)
Further it is calculated that when sales is 50,000 units, the variable costs is $2
Therefore, when the variable costs are now $2.82, the total number of units is 70,500 units
Thus the new table would be as follows:
Description 
selling price $11.60 unit 
Sales of 70,500 units 
817,800 
Less : variable costs 70,500 units @ $2.82 per unit 
198,810 
Contribution 
618,990 
PV ratio : Contribution/sales Remains constant as that of 50,000 units

75% 
Diagram 2: Computation of PV ratio for 70,500 units
In order for the contribution to remain the same (PV ratio static at 75% or 3/4 as in the case of 50,000 units, it is necessary to sell 70,500 units. The above Diagram 2 clarifies the details.