CA Intermediate · Cost and Management Accounting · Marginal Costing
A company's sales are ₹10,00,000, variable costs are ₹6,00,000 and fixed costs are ₹2,50,000. If sales volume rises by 10% with no change in prices or cost rates, what will be the new profit?
New profit is ₹1,90,000. Current contribution is ₹4,00,000, which rises by 10% to ₹4,40,000 because variable costs move with volume. Fixed costs stay at ₹2,50,000, so profit becomes 4,40,000 minus 2,50,000, equal to ₹1,90,000.
- A₹1,90,000Correct
- B₹1,50,000
- C₹1,60,000
- D₹2,00,000
Explanation
Current contribution = 10,00,000 - 6,00,000 = ₹4,00,000; profit = 4,00,000 - 2,50,000 = ₹1,50,000. With 10% more volume, contribution = 4,40,000. New profit = 4,40,000 - 2,50,000 = ₹1,90,000. Option ₹1,60,000 wrongly adds 10% of only profit-sized amount rather than of contribution; fixed costs stay constant.
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