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Dear Sir, how to work out the following question:
The budgeted profit statement of a company, with all figures expressed as a percentage of revenue is as follows:
Revenue: 100
Variable cost 40
Fixed cost 20
Profit 40If the sales volume turns out to be only 80% of that budgeted, the profit, expressed as a percentage of the revised revenue will be in %.’
Thanks.
If the sales volume is only 80%, then the sales revenue will only be 80% of the budgeted amount. The variable cost will only be 80% of the budgeted amount, but the fixed costs will (be definition) be unchanged.
So you can calculate what the new profit will be and express that as a % of the new revenue.
Sir, is the following working correct:
Revised Revenue: 80% of budgeted = 80% of 100 = 80%
V.C: 80% of budgeted = 80% of 40 = 32%
F.C. unchanged = 20%
So, profit = 80% – (32+20)% = 28%In terms of % of revised revenue(100%):
V.C = 32/80 = 40%
F.C = 20/80 = 25%
Profit = 28/80 = 35%
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