Assignment Exercise 7–3: Calculating the PV Ratio and the CVP Ratio Use the same

Question

Assignment Exercise 7–3: Calculating the PV Ratio and the CVP Ratio Use the same assumptions for the Greenside Clinic as in Practice Exercise 7–II.

-The Mental Health program for the Community Center has just completed its fiscal year end. The Program Director determines that his program has revenue for the year of $1,210,000. He believes his variable expense amounts to $205,000 and he knows his fixed expense amounts to $1,100,000.

One more assumption will be added: the Clinic had 35,000 visits. Required

1. In addition to the contribution margin figures already computed, now compute the PV Ratio (also known as CM Ratio).

2. Add another column to your worksheet and compute the clinic’s per-visit revenue and costs.

3. Create a Cost-Volume-Profit chart. Refer to the chapter text along with Figure 7–6. Amount Percent Per Visit
  
   Amount Percent Per Visit

Revenue
Less Variable Cost
Contribution Margin
Less Fixed Cost
Operating Profit (loss)

Explanation / Answer

px = vx + FC + Profit

Income Statement 1) (Amount in $) Percentage Particulars Revenue 1210000 100% LESS :Variable Expenses -205000 16.942%( approximately) Contribution Margin 1005000 83.06%( approximately) LESS :Fixed Expenses -1100000 Operating Loss -95000 Computation of PV Ratio= P/V Ratio (Profit Volume Ratio) is the ratio of contribution to sales which indicates the contribution earned with respect to one rupee of sales. It is calculated as under: = (Contribution * 100) / Sales = 1005000* 100/1210000 = 83.06 ( approximately) 2) Computation of Clinic's Per- Visit Revenue and costs: Income Statement per visit : TOTAL INCOME STATEMENT FOR 35000 VISITS PER VISIT Particulars Revenue 1210000 34.57 LESS :Variable Expenses -205000 -5.86 Contribution Margin 1005000 28.71 LESS :Fixed Expenses -1100000 -31.43 Operating Loss -95000 -2.71 CVP RATIO:

px = vx + FC + Profit

In the above formula,    p is price per unit;    v is variable cost per unit;    x are total number of units produced and sold; and    FC is total fixed cost THEREFORE, 34.57 ( 35000) = 5.86( 35000)+ 1100000+ -95000 1209950 = 1210100 (Difference due to Points)

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