Chapter # 1

Chapter#1
1. Ratio:
- It’s the quantitative relation between two amounts of two things.
A
- In mathematics, a ratio indicates how many times one number contains another (A : B or
B
).
o The first number is called the numerator or antecedent (A) and the second number is
called the denominator or consequent (B).

30( numerator∨antecedent )
60(denominator∨consequent)

Note:
30:60 is not same as 60:30 (Order matters in ratio)

Example
 If there are eight oranges and six lemons in a bowl of fruit, then the ratio of oranges to
lemons is eight to six (8:6).
 Similarly, the ratio of lemons to oranges is 6∶8 and
 the ratio of oranges to the total amount of fruit is 8∶14
ZQ#2

2. Proportion
- Four quantities are said to be in proportion, if ratio of a to b is equal to ratio of c to d, than it
can be expressed as:
a:b :: c:d
- It can be also expressed in fraction as
a c
b
= d
- A proportion is a statement where two or more ratios are equivalent

Examples
2 4 8
4
= =
8 16

- First and last terms are called extremes (‘a’ and ‘d') and middle two terms are called means (‘b’ and
‘c’)

Daily Life examples of ratios and proportion

Traveling
If you are taking 1 hour to cover 100 km distance. For 500 km, you would need 5 hours
driving time.

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Chapter # 1

Daily Life examples of ratios and proportion

(i) Grocery
The grocery store is a good source of ratios in real life. While looking at the prices of various
groceries, you can easily illustrate ratios using two different packing of apples.
For example, if a 1 kg pack of apples costs Rs. 200 and a 5 kg pack of apples costs Rs. 900,
the 5 kg pack is the better value because each kg is cheaper in 5 kg packing.
By dividing the number of kgs of pack by the price, you demonstrate the relationship between
amount and size. For the smaller Pack of apples, each kg costs Rs. 200, for the larger pack
of apples, each kg costs Rs. 180.

Daily Life examples of ratios and proportion

Recipes and Cooking

If you add 1 KG chicken in 1 Kg rice for biryani cooking, then you would need 5kg chicken for
5 kg rice.

QB#1.5

3. Proportionate Sharing
- If a sum is dividing among more than one, it is proportionate sharing.
- Let suppose that 60 is dividing among A, B and C in the ration to 10, 20 and 30 respectively,
then it can be expressed as:
A : B : C :: 10 : 20 : 30
- Above situation can also be expressed as below:

10 20 10
60 : 60 : 60

ZQ#5, 6

4. Percentage (%)
5
Means per hundred. (5% mean ) ZQ#1,3,4
100

5. Inflating figures and Deflating figures

Inflating or deflating figures are very common practice in real life. As we hear about increase in
tax, inflation and population. On the other hand, we used to hear about discount offers which
are deflating figures.

Inflating factor
Hence, from above example, we can say that ‘1.1’ is inflating factor.
So,
If sale price increased by 15%, the inflating factor will be ‘1.15’
If sale price increased by 20%, the inflating factor will be “1.2’

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Chapter # 1

Deflating factor
Hence, from above example, we can say that ‘0.8’ is deflating factor.
So,
If sale price decreased by 15%, the deflating factor will be ‘0.8’
If sale price decreased by 25%, the deflating factor will be “0.75’

QB#1.1111
PQ#16, 38, 41
PP#5

6. Rate of increase or decrease (Percentage increase or decrease)

In case increased amount/value given with original amount / value, the rate of increase or
decrease can be calculate using below formulas:

Increased value−Old value

Percentage increase = x 100 PQ#3, 12, 44
Old Value
PP#2, 4

Old value−Decreased value

Percentage decrease = x 100 PQ# 42
Old Value

7. Pricing

7.1 Mark-up (Profit as percentage of Cost)

Gross profit is expressed as a percentage of cost – this is known as mark-up.
The cost is to assume 100 units and profit to add in cost to calculate sales price.

Sale Price = Cost + Markup

Sale Price = Cost + (Profit % x Cost)
Sale Price = 100 + 20 = 120
PP#3

7.2 Margin
Gross profit is expressed as a percentage of sales – this is known as profit margin. In this
method of costing, the profit set as percentage if sale price.
The sale price is to assume 100 units and profit to less from sale price to calculate cost.

Cost = Sale Price - Margin

Cost = Sale Price - (Profit % x Sale Price)
PP#1

8. Revenue
Amount received from sale of goods or render of services.
Revenue = Sales Price x Quantity sold
Revenue = SP x Qty
9. Profit
The net amount after subtracting the expenses from the revenue.
Profit = Revenue – TC
= Revenue – VC – FC

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Chapter # 1

= Contribution – FC
10. Contribution
Contribution is measured as sales revenue less variable costs. It’s the contribution of product
sold towards fixed cost of the business.
Total contribution = Total Revenue – Total Variable cost
0r
Total contribution = Contribution per unit x Units sold
Per unit Contribution = Sales Price per unit – Variable cost per unit

11. Contribution to sales ratio (C/S ratio)

Its contribution divided by revenue. It’s the percentage of contribution in term of revenue.
C/S ratio = Total contribution / Total sales
Or
C/S ratio = Per unit contribution / Sales price per unit
12. Break even
o The level of activity where there is no profit and no loss to the organization.
o At the breakeven point, profit is zero.
o Total revenue = Total cost
Sales Price x Quantity = Fixed cost + Variable cost per unit x Quantity
or
Y = a + bx

12.1 Break-even units

¿ cost ¿ cost
Units to achieve breakeven= =
Contribution per unit SP−VC

12.1.1 Contribution per unit = Sales price per unit – Variable cost per unit
1
B/E α FC (Direct Relationship) B/ E α
SP
(Indirect
relationship)
B/E α VC (Direct Relationship)

12.2 Break-even revenue

¿ cost
Revenue to achieve breakeven=
CS ratio

Contribution per unit

12.2.1 C/S ratio =
Sales price per unit
Or
Total Contribution
12.2.2 C/S ratio =
Total Sales∨revenue
13) Target Profit
¿ cost+ Target profit
13.1 Units to achieve target profit =
Contribution per unit

¿ cost +target profit

13.2 Revenue to achieve target profit=
CS ratio
14) Margin of Safety

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Chapter # 1

14.1 Margin of safety = Budgeted Revenue – Break even revenue

Budgeted Revenue−Break even revenue

14.2 Margin of safety Percentage =
Budgeted revenue
QB# 2.18, 2.19, 2.20, 2.14

14. Cost behavior

Changes in cost with change in production/Activity Level.

14.1 Variable costs vs Production

VCT α Production (Directly proportion)
VC PU No change with change in production (No relation)
 Total Variable costs are costs that increase with increase in production/Activity level.
 This means that total variable costs increase in direct proportion to the total volume
of output or activity.

14.2 Fixed costs

1
FC PU α (Inversely proportion)
Production

FCT No relation with production

 The cost that does not increase with increase in production/Activity level.
 Fixed costs are also called period costs.

15. Sales Price

SPpu = Costpu + profitpu = Costpu - Losspu

16. Total Cost

TC = (VCpu x Qty) + FC = VCT + FC

17. Graph / Lines of costs

 Total Fixed cost

 Variable cost per unit
 Total variable cost
 Fixed cost per unit

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Chapter # 1

18. Mixed costs

 a cost that is partly fixed and partly variable
 A mixed cost, also called a semi-fixed cost or a semi-variable cost

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