Financial Plan

Budgeted Income Statement

On the basis of the all budgets, the budgeted income statement is prepared. The budgeted
Income statement includes the following;

Particulars Amount
Budgeted Income –
Less: Budgeted Expenses –
Budgeted profitability –
 Budgeted Income Statement Meaning
The Budgeted Income statement, also known as Pro Forma Income
Statement, presents the forecasted financial performance of the entity
for future years of operations. It assists the management in setting
the financial target for future years, designing and implementing new
strategies to achieve the set financial goals, and tracking the actual
periodic performance with the forecasted numbers.
 Budgeted Income Statement- Purpose

Assist Management

Designing and Implementing New

Strategies

Track the Actual Periodic

Performance
Format of Budgeted Income Statement
How to Prepare?
The Budgeted Income statement can be prepared quarterly or yearly. However,
it is advisable to prepare the current year’s financial projections at quarterly
intervals to monitor the actual performance compared to budgeted numbers at
the end of every quarter. It is merely the combination of the Sales/Revenue
Budget, Cost of Goods Sold Budget, Operating expense budget, and cash
budget.
The total operating revenues are derived from the sales budget.
 Budgeted Income Statement- Factors
•The cost of goods sold is derived from the budget of goods sold. The cost of goods sold
comprises all the expenses directly related to manufacturing or procurement, such as
material, labor, factory overheads, and direct expenses.
•The value of operating expenses is calculated with the help of the Operating Expense
Budget. Operating Expense includes office administration expenses such as rent, insurance,
salaries, and selling and marketing expenses
•Similar to Non-operating income, Non-operating expenses are the expenses that are not
related to the operating activity of the business. Examples of such expenses are litigation
claim payments, business restructuring expenses, a loss incurred on the sale of assets, etc.
•Earnings before Interest and Taxes (EBIT) is the total profit of the entity before deducting
interest expenses and statutory taxes.
•The amount of statutory taxes can be calculated at the current corporate tax rates.
•The value of interest expenses can be derived from the cash budget. A cash budget is the
projection of future cash inflows and outflows.
 Advantages

Planning and designing,

coordinating the Provide a long-term implementing, and
activities of the vision executing various
various departments financial strategies

Provide constant
vigilance on the Serves the base for
entity’s financial the investors
performance
 Limitations
• 
•
Based on Assumptions

Time-Consuming

Execution generally does

not occur automatically

Inflexibility
 Budgeted Balance Sheet
A budgeted Balance Sheet is similar to a regular balance sheet and
has the same line items as well. The only difference between the two
is that the budgeted BS is for a future period. In other words, we can
say it is the projection of the balance sheet for a future period. It is a
type of financial budget.

One generally prepares it at the beginning of a financial year. The

company uses the balance sheet of the last year as the base for the
budgeted BS and then makes relevant adjustments. Along with the
previous year’s balance sheet, a company also uses different budgets
and budgeted income statements for its preparation.
Budgeted Balance Sheet
The budgeted balance sheet is prepared once the Budgeted Income Statement is prepared.
The budgeted balance sheet indicates the following:

Particulars Amount
Budgeted Assets  
Plants & Machinery –
Equipment –
Accounts receivables –
Inventory –
Total Assets —
Budgeted Liabilities  
Share Capital –
Retained Earnings –
Accounts payable –
Income tax payable –
Short term loans –
Long-term loans –
Total Liabilities —
 Need or Importance of Budgeted Balance Sheet
The following are the reasons why management will want to prepare a
budgeted BS:
•It helps identify any unfavorable financial transactions that a company may
want to get rid of.
•It also ensures the mathematical accuracy of other schedules or inputs.
•A company can use it to calculate different ratios.
•For deciding future activities and actions, it becomes a guiding document.
•It can also trigger the areas where the company needs to work or change its
strategies.
•It becomes the base for revisions or enhancements in the working capital
limits.
 Steps to Prepare Budgeted Balance Sheet
Following are the steps to prepare a budgeted BS:
Use Real Balance Sheet as Base
The first step is to take all the line items from the last year’s real balance sheet.
Collect the Data of All Budgets
The next step is to collect all the budgets that a company prepares at the start of the year. These budgets
could be production budget, sales budget, cash budget, raw materials budget, salaries and wages budget,
operating and financial expenses budget, etc.
Making Adjustments to Real Balance Sheet
Once we have all the data, including all the budgets and last year’s balance sheet, we start to make
adjustments. These adjustments are made to the real balance sheet using data from different budgets. For
instance, we adjust last year’s sales based on the sales and production budget for the current year.
Apart from the above three steps, a company may also need to prepare schedules to overcome the
complexities in preparing the budgets and budgeted BS and income statements. These schedules help with
the calculation of accounts receivable, inventories, income tax, and more. Additionally, a company also
needs to consider several policies such as tax, Credit, dividend, inventory, and more while finalizing the
budgeted BS.
Adjustments
Cash in Hand/Bank 

Sundry Debtors 

Sundry Creditors 

Finished stock 

Raw Material Stock

Fixed Assets

Loan or Debt

Accumulated Depreciation

Paid-in-Capital

Retained Earnings

General Reserve

Taxation
 Adjustments
Under the steps to prepare the budgeted BS, the last step was to make adjustments. But,
what adjustments does one needs to make to the line items? Detailed below are some of the
adjustments that a company needs to make to arrive at the budgeted BS:
Cash in Hand/Bank – for this, we take the closing figure of Cash from the last year’s real
balance sheet and then use the cash budget to make the necessary adjustments.
Sundry Debtors – for this, we use the closing balance and the data from the sales and cash
budget. To get the balance we need – Opening Debtors Balance plus New Credit
Sale less Cash Received.
Sundry Creditors – for this, we use their closing balance and the purchase budget, and the
cash budget. We use the following formula – Opening Creditors plus New Credit
Purchases less New Payments Made.
Finished stock – for calculating an estimate of the finished stock, we use last years’ closing
balance and the Production, Sales, and Cash Budgets. The adjustment we make is – Opening
Finished Stock plus New Production less New total Sales (Cash+ Credit).
Raw Material Stock – for this, we use last years’ closing balance, as well as
material, production, and Cash Budgets. The adjustment we make is – Opening
Raw Material Stock plus New Purchases (both Cash + Credit) less New
Consumption.
Fixed Assets – for this, we use last years’ closing balance, as well as Cash
Budget, Projected Plan Report, and Plant Utilization budget. The adjustment
we make is – Last Years’ Closing Balance plus New Purchase less New Sale
(Cost price).
Loan or Debt – for this, we use last years’ aclosing balance, as well as inputs
from the cash budget. The adjustment we make is – Last Years’ Closing
Balance plus New Loan less Repayments.
Accumulated Depreciation – for this, we use last years’ closing balance of
accumulated depreciation, as well as the overhead budget. The adjustment we
make is – Last Years’ Closing Balance plus New Depreciation.
Paid-in-Capital – for this, we use last years’ closing balance of paid-in-capital,
as well as the cash budget. The adjustment we make is – Last Years’ Closing
Balance plus Additional Paid-in-Capital.
Retained Earnings – for this, we use last years’ closing balance of retained
earnings, as well as cash budget and budgeted income statement. The
adjustment we make is – Last Years’ Closing Balance plus Estimate of
Profit less the Estimate of Dividend Paid.
General Reserve – for this, we make an adjustment to last years’ closing
balance of general reserve for any change in the law regarding reserve
requirements.
Taxation – for this, we use last years’ closing balance of tax, as well as tax
returns, cash budget, and any regulatory change in tax rate or requirements.
The adjustment we make is – Last Years’ Closing Balance plus New Payable
Tax less (Advance tax paid plus TDS deducted).
What Is A Budgeted Balance Sheet And How To Prepare it

The budgeted balance sheet is just like a balance sheet, i.e., it contains all the assets, liabilities, payables,
capital depreciation, amortization, etc. exactly like a balance sheet, but there is one big difference and that
is that the budgeted balance sheet, unlike the balance sheet, presents the future balance sheet.
In contrast, a balance sheet shows the present value of assets, liabilities, and all the other things that are in
a balance sheet.
Three main parts of a budgeted balance sheet

Liabilitie
Assets Equity
s
The three main parts of a budgeted balance sheet are assets, liabilities, and equity. All of these are explained below:
1) Assets
Assets can be land, product, trademark, or intellectual property owned by a company. The assets can be classified into current and non-
current assets.
Current assets can be monetized quickly, ideally within a year, whereas non-current assets are classified as fixed assets.
These may contain equipment and machinery.
2) Liabilities
Liabilities are what a company owes to others. These may be interest or loan payments, bonds, or utility charges.
Liabilities are also current and non-current liabilities. Current liabilities are those due within a year, whereas non-current liabilities are
those due in more than a year.
3) Equity
Stockholder equity or equity is commonly referred to as part of the budgeted balance sheets, which show how many shares or equity a
company holds.
The more equity, the better the health of a company; it is because if any financial issue arises, the company can sell shares to raise capital.
The equity for public companies is recorded at the current share price. So, it rises and falls as the value of shares of the company rises and
falls.
How To Prepare A Budgeted Balance Sheet?
Preparing a budgeted balance sheet is very easy and simple. The same steps need to be followed as steps are followed when preparing a
balance sheet but keeping future earnings in mind.
 Steps for Preparing a Budgeted Balance Sheet

Decide On
The Timing
Balancing
Of The Stating
State The The
Period Of Liabilities Of Estimate
Company Budgeted
The The The Equity
Assets Balance
Budgeted Company
Sheet
Balance
Sheet
Below is a step-by-step guide that will help in preparing a budgeted balance
sheet:
Decide On The Timing Of The Period Of The Budgeted Balance Sheet
As stated before, the budgeted balance sheets can be between a month, a
quarter, or a year. It depends upon your requirements.
Consider if a person wants to create a budgeted balance sheet from March 1st to
April 1st that person must mention this at the start.
As this is a budgeted balance sheet, it must also mention that it is a projection,
which means it is a future balance sheet.
State The Company Assets
The company’s assets are one of the major parts of the budgeted balance
sheets. All of the assets and their market value are mentioned.
The assets in the balance sheet are divided into current and non-current assets
separately, and then both are added under assets.
The current assets can be money, short-term bonds, cash equivalents, etc. The non-current assets can be fixed machinery
and equipment, long term bonds. These must all be what the company expects to be held in the future.
Stating Liabilities Of The Company
The procedure is the same. But, instead of stating future assets, the company must mention what it expects its future
liabilities to be. Just like the assets side, the liabilities are also divided into current and non-current liabilities.
The current liabilities are short-term loans, interest, and tax payments. For the future budgeted balance sheets, this must
include any borrowing the company is planning to do to pay for its future expansion plan, or if the company is planning on
reducing its liabilities, it must also mention any reduction in liabilities of the company.
Estimate The Equity
At this step, the estimated equity must be shown. For example, if a company plans to sell to finance any future projects, the
company’s balance sheet must show that.
But, if the company does not plan on doing so, the equity should remain unchanged.
Calculating the equity for a private company can be pretty easy as a single entity would hold most shares.
Still, it becomes difficult when estimating it for a public company, as share price changes every minute, but only
projections are to be made, not an exact value.
Balancing The Budgeted Balance Sheet
It is the final step in preparing a budgeted balance sheet. This is done to make sure that the balance sheet balances.
Just add the liabilities with the equity and subtract them from the assets. If the answer is zero, then you have prepared a
correct budgeted balance sheet.
Budgeted Cash Flow Statement
 What Is The Budgeted Cash Flow Statement?
The budgeted cash flow statement is similar to a typical cash flow statement. However, it
does not reflect a company’s cash performance in the past. Instead, it estimates those cash
flows for the future. In other words, it applies budgeting principles to the preparation of the
cash flow statement. With the budgeted cash flow statement, companies can predict their
future cash flows in various areas.

The budgeted cash flow statement falls under a cash budget that companies prepare. This
budget involves estimating all cash inflows and outflows for a company. On top of that, the
cash budget allows companies to forecast their revenues and expenses for a period. With this
budget, companies can predict future cash surplus and deficit positions. By doing so, they
can take the necessary actions in each situation.
The budgeted cash flow statement also involves the same sections as the traditional version.
Companies estimate their cash flows from various areas, including operations, investments
and finances. Of these sections, the first comes from the operating budgets. On top of that,
the budgeted income statement can also contribute to it. The other two may come from
budgets or perceived future transactions.

Essentially, a budgeted cash flow statement is the same as the cash budget. However, it uses
the standard format for the cash flow statement. It arranges items from the cash budget into
that format to make it presentable to stakeholders. In some cases, companies may also use
the direct approach to the cash flow statement. For those companies, the cash budget may be
the same as the budgeted cash flow statement.
Overall, the budgeted cash flow statement presents an estimate of future cash flows. It is
similar to the cash budget but uses the standard format set by accounting standards. Some
stakeholders like creditors or lenders may request companies to prepare this statement.
Sometimes, however, companies may also need it for internal use. Either way, the budgeted
cash flow statement is critical to budgeting.
How To Prepare The Budgeted Cash Flow Statement?
The preparation of the budgeted cash flow statement differs from one company to another.
Usually, it requires all cash inflows and outflows during a period. This process falls under
the preparation of a cash budget. Therefore, the budgeted cash flow statement depends on
that budget. On top of that, companies also some figures through the budgeted income
statement.
Companies must go through several steps to prepare the budgeted cash flow statement.
 FORMAT (INDIRECT METHOD)
Cash Flow Statement (Indirect Method)
Net profit before Tax and extra ordinary Items xxx
Cash flow from Operating activities
Add: Non-cash and non-operating Items which have already been
debited to profit and Loss Account like;
Depreciation xxx
Amortisation of intangible assets xxx
Loss on the sale of Fixed assets xxx
Loss on the sale of Long-term Investments xxx
Provision for tax xxx
Dividend paid xxx xxx
Less: Non-cash and Non-operating Items which have already been
credited to Profit and Loss Account like
Profit on sale of fixed assets (xxx)
Profit on sale of Long term investment (xxx) (xxx)
Operating profit before working Capital changes (A) xxx
 FORMAT (INDIRECT METHOD)
Changes in working capital:

Add: Increase in current liabilities xxx

Decrease in current assets xxx xxx

Less: Increase in current assets (xxx)

Decrease in current liabilities (xxx) (xxx)

Net increase / decrease in working capital (B) xxx

Cash generated from operations (C) = (A+B) xxx

Less: Income tax paid (Net tax refund received) (D) (xxx)

Cash flow from before extraordinary items (C-D) = (E) xxx

Adjusted extraordinary items (+/–) (F) xxx

Net cash flow from operating activities (E+F) = (G) xxx

 FORMAT (INDIRECT METHOD)
Cash flow from Investing activities

Proceeds from sale of fixed assets xxx

Proceeds from sale of investments xxx

Purchase of shares/debentures/fixed assets (xxx)

Net cash from investing activities (H) xxx

Cash flow from Financing activities

Proceeds from issue of shares xxx

Proceeds from issue of debentures xxx

Payment of dividend (xxx)

Net cash flow from financing activities (I) xxx

Net increase in cash and cash equivalents (G+H+I) = (J) xxx

Cash and cash equivalents and the beginning of the period (K) xxx

Cash and cash equivalents and the end of the period (J+K) xxx
Prepare The Budgeted Income Statement
A typical cash flow statement starts from the net profits from the income
statement. After that, it adjusts those profits for any non-cash items. Usually,
those items include depreciation, amortization, interest and tax expenses. The
budgeted cash flow statement may depend on the budgeted income statement
for that reason. Companies do not prepare the budgeted income statement first
for that reason only.
The budgeted income statement estimates the future sales and expenses that
companies might incur. It presents the picture based on the accruals concept.
Nonetheless, companies can forecast the transactions on a cash basis within
those items. Consequently, companies can prepare the cash budget and
budgeted cash flow statement.
 Projected Financial Statements
Projected Financial statement are the tools of profit
planning:-

The Projected Financial statement (PFS) of a firm may

include:-

a) Projected Income Statement

b) Projected Balance Sheet.
Q. The following is the Income Statement of POR Ltd. For the year ending Dec. 31, 2021. Prepare the
PIS for the year 2022 given that the sales have been forecasted to increase by 10 % during the Year 2021
and dividends will be maintained at the same level.
Income statement for the year 2021
Amount
Sales Rs. 3,00,000
-Cost of Goods Sold 2,15,000
Gross profit 85,000
-Depreciation 10,000
-Operating Expenses 40,000
Profit before Interest and Taxes (PBIT) 35,000
-Interest 6,000
Profit before Tax (PBT) 29,000
-Taxes @ 40% 11,600
Profit after Tax 17,600
-Dividend paid 4,000
Retained Earnings 13,400
With the help of PIS prepare Projected balance sheet. The balance sheet of PQR Ltd. As on
Dec. …. is as follows:-
Balance Sheet as on Dec. .., 20..
Liabilities Amount Assets Amount
Share Capital 40,000 Fixed Assets 75,000
Retained Earnings 35,000 Cash 18,000
Long Term Debts 60,000 Stock 21,500
Creditors 7,167 Debtors 35,000
Other current Liabilities 7,333

1,49,500 1,49,500

On the basis of past experience it is known that stock, debtors and the
creditors vary directly with the sales. Draw the projected balance sheet
on the basis of percentage of sales method.
A Break-even analysis
 A Break-even analysis
A break-even analysis is an economic tool that is used to determine
the cost structure of a company or the number of units that need to be
sold to cover the cost. Break-even is a circumstance where a
company neither makes a profit nor loss but recovers all the money
spent.
The break-even analysis is used to examine the relation between the
fixed cost, variable cost, and revenue. Usually, an organisation with a
low fixed cost will have a low break-even point of sale.
 Importance of Break-Even Analysis
 Manages the size of units to be sold
 Budgeting and setting targets
 Manage the margin of safety
 Monitors and controls cost
 Helps to design pricing strategy
 Components of Break-Even Analysis
Fixed costs: These costs are also known as overhead costs. These
costs materialise once the financial activity of a business starts. The
fixed prices include taxes, salaries, rents, depreciation cost, labour
cost, interests, energy cost, etc.
Variable costs: These costs fluctuate and will decrease or increase
according to the volume of the production. These costs include
packaging cost, cost of raw material, fuel, and other materials related
to production.
 Uses of Break-Even Analysis
New business: For a new venture, a break-even analysis is essential. It guides
the management with pricing strategy and is practical about the cost. This
analysis also gives an idea if the new business is productive.
Manufacture new products: If an existing company is going to launch a new
product, then they still have to focus on a break-even analysis before starting
and see if the product adds necessary expenditure to the company.
Change in business model: The break-even analysis works even if there is a
change in any business model like shifting from retail business to wholesale
business. This analysis will help the company to determine if the selling price
of a product needs to change.
 Break-Even Analysis Formula
Break-even point = Fixed cost/Sale Price per unit – Variable cost
per unit
 What is Contribution Margin?
The contribution margin is the difference (more than zero) between
the product’s selling price and its total variable cost. For example, if
a suitcase sells at Rs. 125 and its variable cost is Rs. 15, then the
contribution margin is Rs. 110. This margin contributes to offsetting
fixed costs.
Unit Contribution Margin = Sales Price – Variable Costs
The average variable cost is calculated as your total variable cost
divided by the number of units produced.
In general, lower fixed costs lead to a lower break-even point—but
only if variable costs are not higher than sales revenue.
 How to Lower Your Break-Even Point

There are two basic ways to lower your break-even point:

 lower costs
 raise prices.
But neither should be done in a vacuum. Weigh your options carefully in
pricing methods and consumer psychology to make sure you don’t sell
more product but lose money in the bargain.

Further, consider all elements of costs, such as the associated quality and
delivery, before slashing them to prevent damage to your brand.
Outsourcing products or service can also reduce costs when demand or
volume increase.
 Cost Rs.

Total cost

Variable cost

Fixed cost

Sales (units)
Total Cost/Revenue Rs.

Sales revenue
Profit
Total cost

BEP Sales (units) 43

 Break-even Point:
• Break-even Point: It is the volume of output or sales at which total cost is exactly
equal to sales.

Break-even Point (in units): Fixed cost/Contribution per unit

Break-even Point (in Rupees):
(Fixed cost/Contribution per unit)*Sales price per unit.
The above formula can be written as:
Break-even Point (in Rupees): (Fixed cost/Profit volume ratio)
 Formulas
1.Sales-variable cost=Contribution
2.Contribution-fixed cost=Profit
This formula can also be written as:
•Contribution=profit + fixed cost (equation 1)
3.Profit-volume ratio=(Contribution/sales)*100 This formula can also be
written as: Sales=(contribution/profit-volume ratio)*100
(equation 2)
Put value of contribution in equation 2:
Sales (In rupees) =(fixed cost+ profit)/profit-volume ratio)*100

4. Break even point (units)= Fixed cost/contribution per unit

5. Break even point (Rupees) = (Fixed cost/contribution per unit)*selling price per unit
or
Break even point (Rupees) = (Fixed cost/profit-volume ratio)
 Calculation method
• Breakeven point
• Target profit
• Margin of safety
• Changes in components of breakeven analysis
Breakeven point
 Calculation method

• Contribution is defined as the excess of sales revenue over the

variable costs

• The total contribution is equal to total fixed cost

Formula

Breakeven point
Fixed cost
=
Contribution per unit/ Profit-volume ratio

Sales revenue at breakeven point

= Breakeven point *selling price

Alternative method:
Sales revenue at breakeven point
Contribution required to breakeven
=
Contribution to sales ratio Contribution per unit
Selling price per unit
Breakeven point in units
Sales revenue at breakeven point
=
Selling price
 Example 1
• Selling price per unit Rs. 12
• Variable cost per unit Rs. 3
• Fixed costs Rs. 45000

Required:
• Compute the breakeven point
Target profit
 Formula

No. of units at target profit

Fixed cost + Target profit
=
Contribution per unit
Required sales revenue
Fixed cost + Target profit
=
Contribution to sales ratio
 Example 2
• Selling price per unit Rs. 12
• Variable cost per unit Rs. 3
• Fixed costs Rs. 45000
• Target profit Rs. 18000

Required:
• Compute the sales volume required to achieve the target profit
Margin of safety
 Margin of safety

• The margin of safety is the amount sales can fall before the break-even
point (BEP) is reached and the business makes no profit. This calculation
also tells a business how many sales it has made over its BEP.
• This can be expressed as a number of units or a percentage of sales
 Margin of safety:
• Margin of safety: It is the difference between actual sales and sales
at break-even point. It is the amount by which actual volume of
sales exceeds the break-even point.
• Margin of safety (units):
• Units sold-Breakeven point (units)
Margin of safety (Rs):
(Units sold-Breakeven point (units))*Selling price per unit
or
Actual Sales-Breakeven sales (Rupees)
Formula
Margin of safety
= Budget sales level – breakeven sales level

Margin of safety in %
= Margin of safety *100
Budget sales level

58
 Sales revenue
Total Cost/Revenue Rs.

Profit
Total cost

Sales (units)
BEP
Margin of safety

59
 Example 3
• The breakeven sales level is at 5000 units. The
company sets the target profit at Rs.18000 and the
budget sales level at 7000 units
Required:
Calculate the margin of safety in units and express it
as a percentage of the budgeted sales revenue

60
Changes in components of
breakeven point

61
 Example 4
• Selling price per unit Rs.12
• Variable price per unitRs.3
• Fixed costs Rs.45000
• Current profit Rs.18000

I condition
If the selling prices is raised from Rs.12 to Rs.13, the minimum
volume of sales required to maintain the current profit will be:
II condition
If the selling prices is raised from Rs.12 to Rs.13 and Variable price per
unit is raised from Rs. 3 to Rs. 4, the minimum volume of sales
required to maintain the current profit will be:

62
 Example 5
For a company, sales are Rs. 80,00, variable costs
are Rs. 4,000, and fixed costs are Rs. 4,000.
Calculate the following:
(i) P/V Ratio,
(ii) BEP (Sales),
(iii) Margin of Safety, and
(iv) Profit.
 Example 6
From the following information, find out P/V Ratio and
sales at BEP.

 Variable cost per unit = Rs. 15

 Sales per unit = Rs. 20
 Fixed expenses = Rs. 54,000
What should the new selling price be if BEP for units is
reduced to 6,000 units?
 Example 7
Calculate (i) PVR, (ii) BEP, and (iii) Margin of
Safety based on the following information:

 Sales = Rs. 100,000

 Total cost = Rs. 80,000
 Fixed cost = Rs. 20,000
 Net profit = 20,000
 Example 8
The following figures of sales and profits for the two periods are available in respect of a
concern:
Sales (Rs. ) Profit (Rs.)
Period I 1,00,000 15,000
Period II 1,20,000 23,000

You are required to calculate:

(i) P/V ratio (ii) Fixed Cost (iii) BEP (iv) Profit when sales are Rs. 1,25,000 (v) Sales
required to earn a profit Rs. 20,000
Ans: (i) 40% (ii) Rs. 25,000 (iii) Rs. 62,500 (iv) 25,000 (v) Rs. 1,12,500
1. P/V Ratio= Change in profit/ Change in Sales= 8000*100/20000= 40%

FC
Contribution= Sales * P/v ratio= 10000*40%= 40000

2. FC= C-Profit= 40000-15000= rs. 25000

3. BEP= FC/P/V Ratio= 25000/40%= Rs. 62500

4. Profit When sales is Rs. 125000

Contribution will change= 125000*40%= 50000

Profit= 50000-25000 (FC)= Rs. 25000

5. Sales required to earn a profit Rs. 20,000

FC+P/ P/V ratio= 25000+20000/40%= Rs. 112500

Question 1