CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
A company sells a product at Rs 50 per unit. Variable cost is Rs 30 per unit and total fixed cost is Rs 60,000 per year. What is the break-even point in units?
The break-even point is 3,000 units. Contribution per unit is Rs 20 (selling price Rs 50 less variable cost Rs 30), and fixed costs of Rs 60,000 divided by this contribution give the number of units needed to cover all fixed costs with zero profit.
- A2,000 units
- B3,000 unitsCorrect
- C1,200 units
- D7,500 units
Explanation
Contribution per unit = 50 - 30 = Rs 20. Break-even units = 60,000 / 20 = 3,000. Dividing fixed cost by the selling price (60,000/50 = 1,200) is wrong because it ignores variable cost.
Did you get it right without looking?
One question tells you little. A timed set on Application of Cost Accounting for Business Decisions shows your real accuracy, how long you take and where you lose marks.
More Application of Cost Accounting for Business Decisions questions
- Which statement about the break-even point is correct, other things remaining unchanged?
- Sharma Textiles sells a product at Rs. 50 per unit. Variable cost is Rs. 32 per unit and fixed costs are Rs. 90,000. If 6,000 units are sold…
- Sharma Traders has a P/V ratio of 40% and fixed costs of Rs 2,40,000. What sales value is needed to earn a profit of Rs 60,000?
- Which budget is prepared by starting every activity from zero and requiring each item of expenditure to be justified afresh, rather than add…
- A company has sales of ₹5,00,000, variable costs of ₹3,00,000 and fixed costs of ₹1,20,000. What is its margin of safety as a percentage of …
- A company prepares a budget that is fixed for a single level of activity and is not adjusted even if actual output differs from the planned …