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CA Intermediate · Cost and Management Accounting · Service Costing

A school canteen run by Annapurna Caterers served 12,000 meals in a month. Fixed costs were Rs 1,80,000 and variable cost was Rs 25 per meal. The firm wants a profit of 20% on selling price. What price per meal should it charge?

The price should be Rs 50 per meal. Total cost per meal is Rs 15 fixed plus Rs 25 variable, Rs 40. Since profit is 20% of selling price, cost represents 80% of price, so price equals 40 divided by 0.80, or Rs 50.

  1. ARs 50.00Correct
  2. BRs 48.75
  3. CRs 55.00
  4. DRs 40.00

Explanation

Fixed cost per meal = 1,80,000/12,000 = Rs 15. Total cost per meal = 15 + 25 = Rs 40. Profit is 20% of price, so cost is 80% of price: price = 40/0.80 = Rs 50. Charging 40 x 1.2 = Rs 48 or similar would wrongly treat profit as a markup on cost.

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