| Originally posted by : renuka | ||
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We are given following details of 2 companies: Sales, Variable Cost, Fixed Cost and Budgeted Profit. How will we compute sales at which both companies will earn same profits? |
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1) Calculate contribution for each company.
(Contribution = Sales – Variable Cost)
.
2) Calculate P.V Ratio for each company.
(P.V ratio = Contribution/Sales X 100)
.
3) Sales volume for both the firm to earn equal profit
= Difference in fixed cost/Difference in P.V ratio
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