 Namaste. In last 3 sessions, we have been discussing about CVP analysis. We have also done 2 illustrations and then we started on calculating a particular sum or solving a particular case. The first case was on Ganesh Limited having 3 brand names or 3 products. I hope you are with me and you have solved it up to the point where we stopped. If not try to solve it just now. So, there are 3 products of Ganesh Limited. They have given us variable cost as well as the selling price then monthly fixed cost which is 480,000 and they have also given us 2 sales mixes. In the month of July, it is 20,000, 20,000, 20,000 and in the month of August, 35, 16 and 5. In a part of the question, we were asked to calculate the monthly profits and comment if a month with lower sales can have higher profits. So, what is the profit figure for month of July? This is the solution so far we have done. We always start with calculation of contribution and PV ratio. So, on product A, we have a contribution of 11, B it is 12 and C it is 14 and these are the PV ratios. Then we calculated monthly profit for July. For that first of all we should know the contribution in July which is 5,40,000 minus 480. So, you get profit of 60,000. For month of August, the contribution has improved to 597 minus 480 you get profit of 117 and dramatically you can see that profit has nearly doubled from 60,000 to 11,17,000. If you look at number of units, it is surprising because number of units were 60,000 in July total units and the total units have fallen. Normally, you will expect that fall in number of units would automatically lead to fall in the profits. But what is surprising is profits have in fact gone up. Are you getting me? How it is possible? What will happen? So, what was the explanation? The explanation was that the sales mix of August is much better than that of July. Getting it, why it is better? Because a product A which is having more contribution than product C has been now emphasized. There is no much change in the sale of B, but C sales has gone down from 20 to 5 whereas the sales have A has gone up. That is why overall contribution has increased leading to more contribution and more profits in the month of August. So, as far as the first part of question was concerned, these were where our calculations and there what we had stopped. But today we can do one more calculation try to compute the total sales. So, if you go for total sales, you will realize that even total sales have fallen from 29,60,000 to 24,14,000. So, not only units even number of, even the amount of sales have fallen because you can see that C is actually a product having highest sales value whereas A is having the lowest sales value. So, in terms of total revenue, company will be unhappy because its revenue has fallen, but profitability has improved. Now let us dig further into how it is possible. So, in B part of question what they have asked is, if you consider the sale mix of July and August as two sales mixes that is mix X1 and X2, compute the breakeven point for both and suggest which mix do you recommend. So, in July we have called this plan 1 or say let us say we can call it as plan X1 and in August it is plan X2. Now for each of these plans you have to calculate the breakeven points. So, try to calculate the breakeven point for both the plans. So, you know the sale prices ABC, you know the contribution, you know the number of units. Please compute BP. How will you go ahead? I think this much part is known to you. So, you can see it, we have already calculated the profit for month July which is a plan X1. You even know the BP's. Only difference now is instead of calculating the PV ratio of ABC we had done it earlier. Now we are trying to calculate the PV ratio for the month as a whole treating it as a sales mix. So, if you calculate the average PV ratio, weighted average PV ratio what we have done is contribution upon sales is a PV ratio. So, you can get the weighted average PV ratio for ABC together for the month of July or plan X1. There is also another way of doing it which is also equally interesting. You can treat all these as a particular basket. So, you sell one basket which has one unit of A, one unit of B and one unit of C, 111 because total sales are in the ratio of 1 is to 1 is to 1, 20 is to 20 is to 20. So, one basket consists of 1A, 1B plus 1C. Now try to calculate contribution per basket. So, you can take 1A that is 11, 1B12, 1C4. So, total contribution of the basket is 27. Now we have to generate fixed cost of 480 by way of contribution. So, FC upon contribution per unit is a formula. So, 480,000 divided by 27 will give you break even in terms of number of baskets. Are you getting me? So, your answer is 17,777.77. These many baskets one needs to sell to break even. If you want to convert it in terms of units, it is equal 1 is to 1. So, every basket has 1A, 1B, 1C. So, break even point is also 17777.777. Of course, you can round it up making it 17778 as units of A and B and C. So, you can either calculate it in terms of units or you can also calculate it as rupees. Now how will you calculate it in terms of rupees? You know the formula FC divided by PV ratio. Getting it? Only one thing is earlier we used to do it for individual product. Now we are taking it a weighted average PV ratio. So, for the whole basket the PV ratio is 0.18. You can see individual PV ratios are like this. But as a basket it is 0.18, it is a equal weightage 1 is to 1 is to 1. So, giving me a BEP of this quantum which is I think 26,31,111. Getting it? Either you can do it in rupees or you can do it in units. Both ways is possible. Now please do it for plan X2 that is for the month of August. Apply the same methodology as we have done here. Please do it along with me. Now we already knew that our profit is 117 for plan X2. Now what will be the basket? Suppose we have to go for a basket. The proportion is not 1 is to 1 is to 1 now. Proportion is 35 to 16 to 5. So, you can assume the basket to consist of 35 As, 16 Bs and 5 Cs. Now based on this compute the contribution per basket and compute the BEP in terms of number of baskets. I hope you are able to do it with me. So, for 35 baskets it is 35 into 11 sorry for one basket of 35 As it is 35 into 11. That means 385 rupees from A, 16 into 12 that is 192 from B and 5 into 4 that is 20 from C. It is a big basket giving me a total contribution of 597. Now you can get BEP in terms of number of baskets because we know that our target is to recover 480000 and from one basket I get 597. So, FC upon contribution per unit gives me 804.02. So, you need to sell 804.02 baskets and in one basket we have got 35 AB and C whatever is the amount. So, compute now the units of ABC. So, you will get 28140 units of A, 12864.3 units of B and 4020.1 units of C getting it. So, like earlier but earlier the quantity was same because it was 1 is to 1 is to 1 basket. Now different quantities of AB and C in the given mix that is 35, 16 and 5 this is the minimum sales to be achieved or break even sales. How will you do it in terms of rupees? I think you know we have done it here. First of all calculate weighted average PV ratio for this basket and then compute the BEP. So, how to get PV ratio? Contribution divided by sales. So, 0.24 is a PVR and BP, BP is FC that is 480 divided by 0.24 you get 1940904. Now try to compare the two mixes X1 and X2. The question is if these two months sales are treated as two sales mix which mix is better? Do you prefer X1 or do you prefer X2? What is your answer? See X1 your BP is higher, X2 your BP is lower. What do you feel prefer? More BP or less BP? I think every company wants lower BP. So, naturally they will prefer X2 but that is not the only reason you can also compare PV ratios. What do you get? PV ratio is 0.18 and it has significantly improved to 0.24. So, you are able to have more margin in X2. So, you will prefer X2. If you look at individual products though they have not asked amongst ABC which product do you recommend? It will be very much obvious that since the contribution is high for A and B you will not like C you would like to push for A or B. Any mix which has more weightage for AB is better than any mix which has more weightage for C. But between A and B which is better? This is a very tricky question because between A and B, B has more contribution per unit but A has more PV ratio. So, which one will you prefer? If there is a restriction on the quantity sold, actually you will prefer B because on B every unit you get 12 rupees. But normally there is a restriction on total sales. If you see by total sale wise A is far better because it gives you more percentage contribution or more PV ratio. Now, you can see here PV ratio has substantially improved because the weightage of A has gone up. Now situation to situation your answer has to especially between A and B it can change. But as of now what was asked was if you treat those 2 as 2 mixes which mix do you prefer? So, I think answer is very clear. You would prefer X2 because of 2 reasons it has lower BP and it has more PV ratio, getting it? Now, let us go to the next one. Next one is a case of Keshev limited. Please try to solve it with me. It sells 2 products A and B. They have given the details like sale prices, variable cost and they have also given common fixed costs for 6 months. Now, based on this it is very simple you have to calculate the BP in terms of rupees and the number of each product if they are to be sold in the ratio of 4A is to 3B. So, they have a mix in mind 4A is to 3B if that mix is to be maintained what will be the BP in rupees and in numbers? Again in the second part it is a similar question compute the BP if the products are to be sold in the mix of 4A is to 4B. And in the third part advise the sales manager as to which of the 2 mixes are better. So, it is very much similar to our first case. I hope you will be very easily able to solve it. So, please try to solve it along with me. How will you proceed now? First step I think you all know we want to know the contribution per unit. So, make the columns for A and B compute the contribution, take the FC and try to compute the profit for both the sales mixes and from there on you will also be able to compute the BP's. So, you know 10 minus 5 contribution is 5 for A and only 2 for B. Fixed cost is already given 5,61000. Now to compute the BP it will be easier if you make a basket. So, in sales mix 1 we have made a basket of 4A's and 3B's. So, what is the sales per basket now? 4 into 10 that is 43 into 12 that is 36. Total sales price for the basket is 76. Contribution 5 into 5 is a contribution per 1 unit of A 5 into 4 that is 20 and 6 because 3 into 2. So, total contribution for the basket is 26. Now how will you compute BP? First of all we want to recover 561. So, FC upon contribution per unit. Only thing is instead of taking 1 unit it is being sold in together as a mix as a basket. So, 561 600 upon 26 BP in terms of number of baskets comes to 21600. If we go unit wise 21600 into 4 that is 86 400 of A's and 64 800's of B's. How to get PV ratio now? In rupees one easy way is just multiply that is 64 800 into 10. So, 860 864000 and 777 600 also compute the PV ratio as a weighted average we get 0.342 again we can compute the BP which is 1641000. I am just trying to give you a cross check. Either you can do it from units multiplied still you get 1641 or go for weighted average for the product mix and get BP both will give you the same answer. Are you getting? So, for product mix 1. Now do it for mix 2 which is 4 is to 4 or just a simple because it is like same 1 is to 1 ratio now. Now what is the sales per basket? 40 and 48 because 4 into 10 and 12 contribution per basket 20 and 8. So, total contribution is 28 fixed cost remains same 5 61 600 and from each basket now we earn a contribution of 21. So, BP is 20057 number of baskets in units 20 0657 into 4. So, you get 80 228 and 80 228 both of A and B also calculate it in rupees now. So, multiplied by their respective sale prices 8,00,000 9,00,000 62,000. So, final answer is 17,00,000 65,000 same way it can be done using weighted average as well. Now the weighted average PV is 0.031 so, BP is 17,00,000 65,000. Now the question was firstly to calculate the BEPs and then advise sales manager as to which of the two mix is better. So, which of the two mix do you like now? There are two ways of looking at it first by BP you can see the BP is higher for sales mix 2. So, you would prefer sales mix 1 and by PV ratio, PV ratio is higher for sales mix 1. So, you prefer sales mix 1. If you compare the two products A and B, which product is better? You can clearly see that A is much superior than B both in terms of contribution as well as PV ratio because this has a PV ratio of 50 percent, this has a PV ratio of only 16.6 percent. That is why in sales mix 1 since the weightage of A was higher that was a better sales mix. Are you getting me? So, I hope you have understood now the concept of sales mix and how you calculate BEP of the sales mix or PV ratio of sales mix and based on that how to take decision on which sales mix is superior. So, with this we will stop here. Namaste. Dhaniwal.