MANAGEMENT CONTROL SYSTEM

CASE STUDY NO.-9

CASE
The sales performance of one company in any financial year is given. With the assumption
of no change in variable costs & per unit sales price, evaluate this performance with
necessary calculations. Is there any alternative performance measurement system for this
particular area? If yes, suggest.

Particulars Budgeted Actual Variable Contribution

sales sales costs
Product A 510000 1500000 325000 185000
Product B 890000 1200000 420000 470000
Product C 1475000 600000 650000 825000
Total 2875000 3300000 1395000 1480000
FACTS OF THE CASE
 Sales performance of a company is
given.
 There is no change in variable costs and
sales price per unit.
 There are differences in budgeted sales
and actual sales.
 It assumed that fixed cost remains
constant.
CONCEPTS

1. Contribution

 Excess of selling price over variable cost

 Base for determining profitability of
each product
 It can also be calculated as addition of
profit and fixed cost
2. Profit Volume (P/V) Ratio

 Expresses relation between contribution

and sales
 It is the indicator of the rate at which
organisation is earning profits
 It can also be calculated as change in
profit or loss in relation to change in
sales
PRODUCT A
 P/V ratio = 36.27%
 Contribution on budgeted sales
= Rs. 1,85,000
 Contribution on actual sales
= Rs. 5,44,050
 Difference in contributions = Rs. 4,48,720
 Diff. between budgeted sales and actual sales
= Rs. 9,90,000
 General P/V ratio = 45.32%
PRODUCT B
 P/V ratio = 52.81%
 Contribution on budgeted sales
= Rs. 4,70,000
 Contribution on actual sales
= Rs. 6,33,720
 Difference in contributions = Rs. 1,63,720
 Diff. between budgeted sales and actual sales
= Rs. 3,10,000
 General P/V ratio = 25.83%
PRODUCT C
 P/V ratio = 55.93%
 Contribution on budgeted sales
= Rs.8,25,000
 Contribution on actual sales
= Rs. 3,35,580
 Difference in contributions = Rs. 5,39,420
 Diff. between budgeted sales and actual sales
= Rs. 8,75,000
 General P/V ratio = 38.35%
TOTAL
 P/V ratio = 51.48%
 Contribution on budgeted sales
= Rs. 14,80,000
 Contribution on actual sales
= Rs. 15,13,230
 Difference in contributions = Rs.33,230
 Diff. between budgeted sales and actual sales
= Rs. 4,25,000
 General P/V ratio = 7.81%
CONCLUSION
 The overall profitability of the business
has lowered. This can be justified by the
general P/V ratio of the total products
which has come down to 7.81%. The
reason for this is that the actual sales of
product C are lower than the budgeted
sales. Thus it is clear that there a
mistake in estimation of sales of product
C.
 It is observed that the P/V ratio is the
highest for Product C with 55.93%.
Considering the sales, the actual sales
for the product with highest P/V ratio
have gone down than the budgeted
sales by 8,75,000. Therefore it is
suggested that the company should take
care about product C so as to increase
their overall profitability.
THANK YOU!