CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
A firm sells a product at ₹50 per unit. Variable cost is ₹30 per unit and fixed costs are ₹2,00,000 per year. What is the break-even point in units?
Break-even is 10,000 units. Contribution per unit is ₹20 (₹50 less ₹30 variable cost), and fixed costs of ₹2,00,000 divided by this contribution give the number of units needed to recover fixed costs with zero profit.
- A4,000 units
- B6,667 units
- C10,000 unitsCorrect
- D5,000 units
Explanation
Contribution per unit = 50 - 30 = ₹20. Break-even units = 2,00,000 / 20 = 10,000 units. Dividing by the selling price (2,00,000/50 = 4,000) ignores variable cost and is wrong.
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