CMA Foundation · Fundamentals of Financial and Cost Accounting · Application of Cost Accounting for Business Decisions
A firm sells a product at Rs 50 per unit. Variable cost is Rs 30 per unit and total fixed costs are Rs 2,00,000. What is the break-even point in units?
The break-even point is 10,000 units. Contribution per unit is Rs 20 (selling price Rs 50 less variable cost Rs 30), and dividing fixed costs of Rs 2,00,000 by this contribution gives the number of units needed to cover fixed costs.
- A4,000 units
- B6,667 units
- C10,000 unitsCorrect
- D25,000 units
Explanation
Contribution per unit = 50 - 30 = Rs 20. Break-even units = 2,00,000 / 20 = 10,000 units. The option 4,000 units divides fixed costs by the selling price (2,00,000/50), which wrongly ignores variable cost.
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