CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
A firm has a product with selling price Rs. 80 and variable cost Rs. 56 per unit. Fixed costs are Rs. 1,20,000. How many units must be sold to earn a profit of Rs. 60,000?
The firm must sell 7,500 units. Contribution per unit is Rs. 24, and the contribution needed to cover fixed costs of Rs. 1,20,000 plus a profit of Rs. 60,000 is Rs. 1,80,000. Dividing Rs. 1,80,000 by Rs. 24 gives 7,500 units.
- A5,000 units
- B7,500 unitsCorrect
- C2,500 units
- D6,000 units
Explanation
Contribution per unit = 80 - 56 = Rs. 24. Required contribution = fixed costs + target profit = 1,20,000 + 60,000 = Rs. 1,80,000. Units = 1,80,000/24 = 7,500. 5,000 units is the break-even quantity, which ignores the target profit.
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