Financial Services for Project

Project Financial
Services

Table of Contents
TASK..................................................................................................................................3
Q1..............................................................................................................................3
Q2..............................................................................................................................3
Q3. ............................................................................................................................5
Q4..............................................................................................................................8
Q5..............................................................................................................................9
Q6............................................................................................................................10

TASK
Q1
A) The manager of ABC Limited needs to calculate profit volume ratio of the the
product for the purpose of identifying volume of profitability of the product. Profit volume
ratio describe the relationship between sales and contribution of the product.
Given Information:
Here sales = 25 per unit
Variable cost = 5 per unit
Fixed cost = 110000
Calculation of Profitability Threshold:
Profitability Threshold = Fixed cost / Contribution
= 110000 / 80% = 137500
Workings:
Contribution = Sales – variable cost
= 25- 5 = 20 per unit
P/V Ratio = Contribution per unit/sales per unit*100
P/v ratio = 20/25*100 = 80 %
B) Break even point : It is a point at which total cost and total revenue of the products
are equal at this stage company not earn profit and not suffering from any kind of loss.
Calculation of BEP when company sales 20000 unit:
Formula of BEP : Fixed cost / profit volume ratio
Here sales 20000 unit @ 25
Variable cost @5 per unit
Particular Amount
Sales 20000 units @ 25 per unit 500000
- Variable cost,20000@5 per unit 100000
Contribution 400000
- Fixed cost 110000
Profit 290000

Break-even point (Units) = Fixed cost / Contribution per unit = 110000 / 20 = 5500 units.
C) Thus from above calculations it has been analysed that sales value or turnover as
per threshold profitability would be € 137500 also in unit term at least 5500 units
required to be sold to attain break-even point where there would be a situation of no
profit and loss.
Q2
Given Information:
Initial Cost 200000
Useful Life 5 Years
Production Capacity 200000 units
Ist Year 70% capacity
2nd year and thereafter 100% capacity
Sales Price 2.5 Increase 4.00%
Variable costs 1.5 Increase 3.00%
Annual Fixed costs 60000 Increase 2.00%
Depreciation 25000 SLM
Salvage Value 30000
Discount Rate 8.00%
Tax 25.00%