Question 1

Company A Company B
Sales 300000 300000

Less: Variable 240000 200000

Cost
Fixed Cost 30000 270000 70000 270000
Profit 30000 30000

a) Calculate the break-even points for each company

company A

break-even point= fixed cost / CM ratio

CM ratio = (300000-240000)/300000

=20%

Break-even point= (300000/20%)

=150000

Company B

Break-even point= fixed cost / CM ratio

CM ratio = (300000-200000)/300000

=33%

Break-even point= (70000/33%)

=212121
b) Calculate sales volume at which each of the two companies will make a profit of
Rs.10,000

required sales= (Target profit + fixed cost)/ CM ratio

company A

required sales= (10000+30000)/20%

=200000

Company B

required sales= (10000+70000)/33%

=242424

(c)

(1) In condition of heavy demand, a concern with higher P/V Ratio can earn greater profits
because of higher contribution. Thus company A is likely to earn greater profit.

(2) In conditions of low demand, a concern with lower break-even point is likely to earn more
profits because it will start making profits at lower level of sales. Therefore, in case of low
demand company B, will make profits when its sales reach 212121, whereas company A, will
start making profits only when its sales reach the level of 150000.

QUESTION 2

1) Current ratio
2020 R.s

Current ratio = total current assets / total current liabilities

Total current assets=(5000+4000+40000+15000)=64000

Total current liability=(36000+2000+10000+60000+12000) = 120000

64000/120000

= 0.53
 2021R.s

Total current assets= (8000+2000+25000+10000) = 45000

Total current liability=(12000+1000+20000+70000+7000)=110000

45000/110000

=0.41

2)Acid test ratio

2020 R.s

Acid test ratio=(CA-stock-prepaid expenses)/ CL

64000-15000=49000/120000

=0.41

2021R.s

45000—10000= 35000

35000/110000

=0.32

2) Debtors Turnover ratio

2020 R.s

Debtors turnover ratio = credit sales/ average receivable

100000/56000
=1.79

2021R.s

Debtors turnover ratio = credit sales/ average receivable

150000/65000

=2.31
 3) Average collection period
2020 R.s

Average collection period= 365 days/account receivable turn over ratio

365/1.79

=203.9

2021R.s

Average collection period= 365 days/account receivable turn over ratio

365/2.31

=158.01

5)Stock turnover ratio

2020 R.s

= cost of goods sold/average stock

70000/15000

=4.7

2021R.s

= cost of goods sold/average stock

110000/10000

= 11