P/V Ratio is 25% and Margin of Safety is Rs; 3,00,000, the amount of profit is .a.Rs. 80,000.b.Rs. 1,00,000.c.. Rs. 60,000.d.Rs. 75,000.
Question
P/V Ratio is 25% and Margin of Safety is Rs; 3,00,000, the amount of profit is .a.Rs. 80,000.b.Rs. 1,00,000.c.. Rs. 60,000.d.Rs. 75,000.
Solution
The P/V ratio, also known as the profit-volume ratio, is a measure of the profitability of a product. It is calculated by dividing the contribution margin (sales - variable costs) by sales.
The Margin of Safety is the difference between the actual sales and the break-even sales. It is the amount by which sales can drop before losses begin to be incurred.
In this case, the P/V ratio is 25% and the Margin of Safety is Rs. 3,00,000.
To find the profit, we can use the formula:
Profit = P/V Ratio * Margin of Safety
Substituting the given values into the formula:
Profit = 25/100 * 3,00,000 = Rs. 75,000
So, the amount of profit is Rs. 75,000. Therefore, the correct answer is (d) Rs. 75,000.
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