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# Free Monroe Clock Company Essay Sample

Computation of profit volume (PV) Ratio for household timers

 Description selling price \$8-unit 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

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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.

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