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Learning Objectives: The students are expected to learn and apply the cost-volume-profit analysis.

Scenario:

Aini & Alex (Pvt.) Limited launched its fashion accessories in ladies’ purses few years back in Karachi with the aim to let them handle their necessities with comfort. Now, its brands are famous for stylish and affordable accessories.

At the start of new financial year, the sales manager of the Aini & Alex (Pvt) limited has to plan about future sales of its bags section, consisting of two product lines - leather handbags and clutch purses. To plan about future sales, the sales manager is in need of data about per unit cost and profit for each product line from the company’s accountant.

Accountant demonstrates the per unit data that shows currently the company is selling leather handbags at Rs. 300 per unit and clutch purse at Rs 190 per unit respectively. Other cost data is as follows:

Details

Leather Handbags

Clutch Purses

Rs. P/U

Rs. P/U

Variable cost

130.00

110.00

Fixed cost

144.00

52.50

Profit

26.00

27.50

Considering the above mentioned information, answer the following:

a)   Determine per unit contribution margin, contribution margin ratio for each of the product.

b)   If the sales manager of Aini & Alex (Pvt.) Limited decides to increase production substantially any of the above two products (manufactured units are expected to be sold in the market), determine which product will be more profitable for the company to produce assuming that cost behavior pertains remain unchanged.

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Tariq bhai plz help me to solv that GDB plz

this is not my subject but interested Q.

SOL

Part (A)

CM ratio leather handbags

Contribution margin = s - v.c

CM   =   s – c.v

CM     =  300-130 =170

CM ratio = CM / s

CM ratio = 170/300 =0.567

CM ratio for Clutch purses

Formula

CM   =   S  -  V.C

CM   =  190 – 110

CM  =  80

CM ratio  = CM / S

CM ratio  =  80 / 190

Cm ratio  =  0.421

Part ( B )

leather handbags is more profitable because its contribution margin ratio is high clutch purses.leather handbags per unit sale is higher than the clutch purses.its mean that Aini & Alex pvt. Increase the production of leather handbags and increase the profit margin ratio.example coted china production.china large number of units produce less profit margin earn.same in that question Aini & Alex pvt. Large number units produce leather handbags an earn a profit.

is it correct?

Then Wot About Part c?????????? yeh explaination 3rd main nahi aiy gi?

g nai kuen k 3rd ka answer he b hai ... 1st ka answer to koe confirm karay pls.

plz help in solving gdb

which formula is r8.????

Contribution margin = s - v.c

or

Contribution margin = s - v.c*100

# Contribution Margin

Contribution margin (CM) is the amount by which sales revenue exceeds variable costs. It can be calculated as contribution margin per unit as well as total contribution margin, using the following formulas:

Unit CM = Unit Price − Variable Cost per Unit

Total CM = Total Sales − Total Variable Costs

Variable costs are those which vary in proportion to the level of production. Variable cost may be direct as well as indirect. Direct variable cost includes direct material cost and direct labor cost. Indirect variable costs include certain variable overheads.

Total contribution margin can also be obtained by multiplying unit contribution margin by number of units sold. Similarly, contribution margin per unit can also be calculated by divided total contribution margin by number of units sold.

## Contribution Margin Ratio

Contribution margin ratio is contribution margin as percentage of sales. It can be calculated as shown in the following formula:

 CM Ratio = Unit Contribution Margin = Total Contribution Margin Unit Price Total Sales

Contribution margin and contribution margin ratio are used in the breakeven analysis.

## Example

Use the following information to calculate unit contribution margin, total contribution margin and contribution margin ratio:

 Price Per Unit \$22 Units Sold 802 Total Variable Cost \$9,624

Solution

 Total Sales = 802 × \$22 = \$17,644 Total Contribution Margin = \$17,644 − \$9,624 = \$8,020 Contribution Margin Per Unit = \$8,020 ÷ 802 = \$10 CM Ratio = \$8,020 ÷ \$17,644 = \$10 ÷ \$22 ≈ 45%

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